Assume one year later (2019) the company A&B Company Ltd has been formed and the owners are desirous of companying several financial transactions and possible outcomes to assist in guiding their decision-making processThe company’s charter authorizes 1,000,000 shares of common stock and 100,000 shares of preferred stock and the following are the transactions for consideration:A&B Company Ltd purchased a piece of land from the original owner. In payment for the land, A&B Company Ltd issues $400,000 shares of common stock with $1.00 par value. The land has been appraised at a market value of 1,480,000.The company sold 110,000 shares of common stock with $1 par value.Issued 24,000 shares of $14 par value preferred stock. Shares were issued at par.Earned net income of $1,000,000Dividend declared and paid - $0.15 per share on common stockDividend declared and paid - $5 per share on preferred stockUsing the information above and as guided:1. Prepare the Journal entries for the above transaction.2. Prepare the closing entries for the above transaction.

Common Stock: Common stock is a security that represents ownership in a corporation. In a…

Answered: Assume one year later (2019) the…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 23E

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Assume one year later (2019) the company A&B Company Ltd has been formed and the owners are desirous of companying several financial transactions and possible outcomes to assist in guiding their decision-making process

The company’s charter authorizes 1,000,000 shares of common stock and 100,000 shares of preferred stock and the following are the transactions for consideration:

A&B Company Ltd purchased a piece of land from the original owner. In payment for the land, A&B Company Ltd issues $400,000 shares of common stock with $1.00 par value. The land has been appraised at a market value of 1,480,000.
The company sold 110,000 shares of common stock with $1 par value.
Issued 24,000 shares of $14 par value preferred stock. Shares were issued at par.
Earned net income of $1,000,000
Dividend declared and paid - $0.15 per share on common stock
Dividend declared and paid - $5 per share on preferred stock

Using the information above and as guided:

1. Prepare the Journal entries for the above transaction.

2. Prepare the closing entries for the above transaction.

Expert Solution

Step 1

Common Stock:

Common stock is a security that represents ownership in a corporation.
In a liquidation, common stockholders receive whatever assets remain after creditors, bondholders, and preferred stockholders are paid.
There are different varieties of stocks traded in the market. For example, value stocks are stocks that are lower in price in relation to their fundamentals. Growth stocks are companies that tend to increase in value due to growing earnings.
Investors should diversify their portfolio by putting money into different securities based on their appetite for risk.

Preferred Stock:

Preferred stockholders have a higher claim on distributions (e.g. dividends) than common stockholders.
Preferred stockholders usually have no or limited, voting rights in corporate governance.
In the event of a liquidation, preferred stockholders' claim on assets is greater than common stockholders but less than bondholders.
Preferred stock has characteristics of both bonds and common stock which enhances its appeal to certain investors.

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