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Issuing Common and Preferred Stock
Klaus Herrmann, a biochemistry professor, organized Bioproducts Inc. early this year. The firm will manufacture antibiotics using gene splicing technology. Byproducts’ charter authorizes the firm to issue 10,000 shares of 7%, S70 par preferred stock and 150,000 shares of $5 par common stock. During the year, the firm engaged in the transactions listed below.
- Issued 50,000 common shares to Klaus Herrmann in exchange for $550,000 cash.
- Sold 8,000 common shares to a potential customer for $12 per share.
- Issued 4,000 shares of preferred stock to a venture capital firm for $85 per share.
- Gave 100 shares of common stock to Margaret Robb, a local attorney, in exchange for Margaret’s work in arranging for the firm’s incorporation. Margaret usually charges $1,200 for comparable work.
Required:
Prepare a journal entry for each of these transactions
Concept introduction:
Stocks (Common Stock and Preferred Stock):
These are two types of the share capital of a company. Common Stock represents the Common shares issued to the shareholders and preferred stock represents the preference shares issued. Preference shares are given preference in payment of dividends and repayment of capital. Common shareholders get the inbuilt right to vote in decisions of the company and preference shareholders generally do not get this right but they may get voting rights with special provisions.
To prepare:
The Journal entries for the transactions given.
The Journal entries for the transactions given are explained as follows:
| Journal Entries | ||||
| # | Account Titles | Debit | Credit | |
| a. | Cash | $ 550,000 | ||
| Common Stock (50,000 Shares @ $5) | $ 250,000 | |||
| Paid in Capital in Excess of Par- Common Stock (550,000-250000) | $ 300,000 | |||
| (Being Common Stock Issued for Cash) | ||||
| b. | Cash (8000 Shares @ $12) | $ 96,000 | ||
| Common Stock (8,000 Shares @ $5) | $ 40,000 | |||
| Paid in Capital in Excess of Par- Common Stock (96000-40000) | $ 56,000 | |||
| (Being Common Stock Issued for Cash) | ||||
| c... | ||||
Chapter 10 Solutions
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