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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Thornwood Partners began business on January 1, 2019. The corporate charter authorized issuance of 75,000 shares of $1 par value common stock and 8,000 shares of $3 par value. 10% cumulative preferred stock. On July 1. Thornwood issued 20,000 shares of common stock in exchange for 2 years' rent on a retail location. The cash rental price is $3,000 per month, and the rental period begins on July 1. What is the correct entry to record the July 1 transaction?

  1. Debit to Cash. $72,000; credit to Prepaid Rent. $57,600
  2. Debit to Prepaid Rent. $72,000: credit to Common Stock. $72,000
  3. Debit to Prepaid Rent. $72,000: credit to Common Stock. $20,000: credit to Additional Paid-In Capital-Common Stock. $52,000
  4. Debit to Prepaid Rent. $72,000: credit to Common Stock. $60,000: credit to Additional Paid-In Capital - Common Stock. $12,000

To determine

Concept introduction:

Stockholder’s Equity:

Stockholders Equity includes the paid up amount of all stocks (Common as well as preferred) issued and retained earnings balance. It represents the amount owed to the stockholders by the company. Stockholders Equity is the section of balance sheet’s equity part.

To identify:

The correct journal entry to record the July 1 transaction.

Explanation

The correct journal entry to record the July 1 transaction is explained as follows:

Journal Entries
Date Account Titles Debit Credit
July...

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