(a)
No-par common stock: The common stock that is issued at its fair market value is known as no-par common stock. Common stock are the ordinary shares that a corporation issues to the investors in order to raise funds. In return, the investors receives a share of profit from the profits earned by the corporation.
Preferred stock: The stock that provides a fixed amount of return (dividend) to its stockholder before paying dividends to common stockholders is referred as preferred stock.
Par value: It refers to the value of a stock that is stated by the corporation’s charter. It is also known as face value of a stock.
To Journalize: the issuance of common stock and preferred stock for Corporation T.
(a)
Answer to Problem 11.1AP
Record the
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2017 | |||||
January | 1 | Cash (1) | 280,000 | ||
Common Stock (2) | 70,000 | ||||
Paid-in Capital in Excess of Stated Value (3) | 210,000 | ||||
(To record issuance of no-par common stock) | |||||
March | 1 | Cash (4) | 636,000 | ||
Preferred Stock (5) | 600,000 | ||||
Paid-in Capital in Excess of Par Value–Preferred Stock (6) | 36,000 | ||||
(To record issuance of preferred stock) | |||||
May | 1 | Cash (7) | 720,000 | ||
Common Stock (8) | 120,000 | ||||
Paid-in Capital in Excess of Stated Value (9) | 600,000 | ||||
(To record issuance of no-par common stock) | |||||
September | 1 | Cash (10) | 25,000 | ||
Common Stock (11) | 5,000 | ||||
Paid-in Capital in Excess of Stated Value (12) | 20,000 | ||||
(To record issuance of no-par common stock) | |||||
November | 1 | Cash (13) | 168,000 | ||
Preferred Stock (14) | 150,000 | ||||
Paid-in Capital in Excess of Par Value–Preferred Stock (15) | 18,000 | ||||
(To record issuance of preferred stock) |
Table (1)
Working Notes:
Compute cash received for 70,000 common shares at $4 per share.
Compute the common stock value for 70,000 shares at $1 stated value.
Compute the paid-in capital in excess of stated value-Common stock.
Compute the cash received for 12,000
Compute the preferred stock value for 12,000 shares at $50 par value per share.
Compute paid-in capital in excess of par value-Preferred stock.
Compute the cash received for 120,000 common shares at $6 per share.
Compute common stock value for 120,000 common shares at $1 stated value per share.
Compute paid-in capital in excess of stated value-Common stock.
Compute the cash received for 5,000 common shares at $5 per share.
Compute the common stock value for 5,000 common shares at $1 stated value per share.
Compute paid-in capital in excess of stated value-Common stock.
Compute cash received for 3,000 preferred shares at $56 per share.
Compute preferred stock value for 3,000 preferred shares at $50 par value per share.
Compute paid-in capital in excess of par value-Preferred stock.
Explanation of Solution
January 10: Issued 70,000 shares of common stock for cash at $4 per share.
- Cash is an asset account. The amount is increased because cash is received due to stock issue; therefore, debit Cash account with $280,000.
- Common Stock is a
stockholders’ equity account and the amount has increased due to issuance of common stock. Therefore, credit Common Stock account with $70,000. - Paid-in Capital in Excess of Stated Value is a stockholders’ equity account and the amount has increased due to increase in capital. Therefore, credit Paid-in Capital in Excess of Stated Value account with $210,000.
March 1: Issued 12,000 shares of preferred stock for cash at $53 per share.
- Cash is an asset account. The amount is increased because cash is received due to stock issue; therefore, debit Cash account with $636,000.
- Preferred Stock is a stockholders’ equity account and the amount has increased due to issuance of preferred stock. Therefore, credit Preferred Stock account with $600,000.
- Paid-in Capital in Excess of Par Value–Preferred Stock is a stockholders’ equity account and the amount has increased due to increase in capital. Therefore, credit Paid-in Capital in Excess of Par Value–Preferred Stock account with $36,000.
May 1: Issued 120,000 shares of common stock for cash at $6 per share.
- Cash is an asset account. The amount is increased because cash is received due to stock issue; therefore, debit Cash account with $720,000.
- Common Stock is a stockholders’ equity account and the amount has increased due to issuance of common stock. Therefore, credit Common Stock account with $120,000.
- Paid-in Capital in Excess of Stated Value is a stockholders’ equity account and the amount has increased due to increase in capital. Therefore, credit Paid-in Capital in Excess of Stated Value account with $600,000.
September 1: Issued 5,000 shares of common stock for cash at $5 per share.
- Cash is an asset account. The amount is increased because cash is received due to stock issue; therefore, debit Cash account with $25,000.
- Common Stock is a stockholders’ equity account and the amount has increased due to issuance of common stock. Therefore, credit Common Stock account with $5,000.
- Paid-in Capital in Excess of Stated Value is a stockholders’ equity account and the amount has increased due to increase in capital. Therefore, credit Paid-in Capital in Excess of Stated Value account with $20,000.
November 1: Issued 3,000 shares of preferred stock for cash at $56 per share.
- Cash is an asset account. The amount is increased because cash is received due to stock issue; therefore, debit Cash account with $168,000.
- Preferred Stock is a stockholders’ equity account and the amount has increased due to issuance of preferred stock. Therefore, credit Preferred Stock account with $150,000.
- Paid-in Capital in Excess of Par Value–Preferred Stock is a stockholders’ equity account and the amount has increased due to increase in capital. Therefore, credit Paid-in Capital in Excess of Par Value–Preferred Stock account with $18,000.
(b)
To
(b)
Explanation of Solution
T Accounts: T- accounts are prepared for all the business transactions. First, journal entries are passed and then transferred to the respective ledger accounts where they are recorded, and summarized in either side of the ‘T’ format. It is divided into two parts by a vertical line, that is, the left side and the right side. The left side of the T-account is known as the debit side, and the right side of the T-account is known as the credit side. The account name appears on the top of the T-account.
Preferred stock account is a component of stockholders’ equity account with a normal credit balance.
Preferred Stock | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
December 31, 2017 | Closing balance | 750,000 | March 1 | Cash | 600,000 | |
November 1 | Cash | 150,000 | ||||
Total | 750,000 | Total | 750,000 | |||
January 1, 2018 | Opening Balance | $750,000 |
Table (2)
Paid-in Capital in Excess of Par Value–Preferred Stock account is a component of stockholders’ equity account with a normal credit balance.
Paid-in Capital in Excess of Par Value–Preferred Stock | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
December 31, 2017 | Closing balance | 54,000 | March 1 | Cash | 36,000 | |
November 1 | Cash | 18,000 | ||||
Total | 54,000 | Total | 54,000 | |||
January 1, 2018 | Opening Balance | $54,000 |
Table (3)
Common stock is a component of stockholders’ equity account with a normal credit balance.
Common Stock account | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
December 31, 2017 | Closing balance | 195,000 | January 10 | Cash | 70,000 | |
May 1 | Cash | 120,000 | ||||
September 1 | 5,000 | |||||
Total | 195,000 | Total | 195,000 | |||
January 1, 2018 | Opening Balance | $195,000 |
Table (4)
Paid-in Capital in Excess of Stated Value–Common Stock account is a component of stockholders’ equity account with a normal credit balance.
Paid-in Capital in Excess of Par Value–Preferred Stock | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
December 31, 2017 | Closing balance | 830,000 | January 10 | Cash | 210,000 | |
May 1 | Cash | 600,000 | ||||
September 1 | Cash | 20,000 | ||||
Total | 830,000 | Total | 830,000 | |||
January 1, 2018 | Opening Balance | $830,000 |
Table (5)
(c)
To Prepare: the paid-in capital portion of stockholders’ equity section of balance sheet for Corporation T as at December 31, 2017.
(c)
Explanation of Solution
Prepare the paid-in capital portion of stockholders’ equity section of balance sheet for Corporation T as at December 31, 2017.
Corporation T | ||
Balance Sheet (Partial) | ||
December 31, 2017 | ||
Particulars | Amount ($) | Amount ($) |
Stockholders’ equity | ||
Paid-in Capital | ||
Capital stock | ||
6% Preferred stock, $50 par value, 20,000 shares authorized, 15,000 shares issued | $750,000 | |
Common stock, no par, $1 stated value, 500,000 shares authorized, and 195,000 shares issued | 195,000 | |
Total capital stock | $945,000 | |
Additional paid-in capital | ||
Paid-in capital in excess of par value–Preferred stock | 54,000 | |
Paid-in capital in excess of stated value–Common stock | 830,000 | |
Total additional paid-in capital | 884,000 | |
Total paid-in capital | $1,829,000 |
Table (6)
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Chapter 11 Solutions
FINANCIAL ACCOUNTING: TOOLS WP ACCESS
- Selected transactions completed by Equinox Products Inc. during the fiscal year ended December 31, 2016, were as follows: a. Issued 15,000 shares of 20 par common stock at 30, receiving cash. b. Issued 4,000 shares of 80 par preferred 5% stock at 100, receiving cash. c. Issued 500,000 of 10-year, 5% bonds at 104, with interest payable semiannually. d. Declared a quarterly dividend of 0.50 per share on common stock and 1.00 per share on preferred stock. On the date of record, 100,000 shares of common stock were outstanding, no treasury shares were held, and 20,000 shares of preferred stock were outstanding. e. Paid the cash dividends declared in (d). f. Purchased 7,500 shares of Solstice Corp. at 40 per share, plus a 150 brokerage commission. The investment is classified as an available-for-sale investment. g. Purchased 8,000 shares of treasury common stock at 33 per share. h. Purchased 40,000 shares of Pinkberry Co. stock directly from the founders for 24 per share. Pinkberry has 125,000 shares issued and outstanding. Equinox Products Inc. treated the investment as an equity method investment. i. Declared a 1.00 quarterly cash dividend per share on preferred stock. On the date of record, 20,000 shares of preferred stock had been issued. j. Paid the cash dividends to the preferred stockholders. k. Received 27,500 dividend from Pinkberry Co. investment in (h). l. Purchased 90,000 of Dream Inc. 10-year, 5% bonds, directly from the issuing company, at their face amount plus accrued interest of 375. The bonds are classified as a heldtomaturity long-term investment. m. Sold, at 38 per share, 2,600 shares of treasury common stock purchased in (g). n. Received a dividend of 0.60 per share from the Solstice Corp. investment in (f). o. Sold 1,000 shares of Solstice Corp. at 45, including commission. p. Recorded the payment of semiannual interest on the bonds issued in (c) and the amortization of the premium for six months. The amortization is determined using the straight-line method. q. Accrued interest for three months on the Dream Inc. bonds purchased in (l). r. Pinkberry Co. recorded total earnings of 240,000. Equinox Products recorded equity earnings for its share of Pinkberry Co. net income. s. The fair value for Solstice Corp. stock was 39.02 per share on December 31, 2016. The investment is adjusted to fair value, using a valuation allowance account. Assume Valuation Allowance for Available-for-Sale Investments had a beginning balance of zero. Instructions 1. Journalize the selected transactions. 2. After all of the transactions for the year ended December 31, 2016, had been posted [including the transactions recorded in part (1) and all adjusting entries], the data that follows were taken from the records of Equinox Products Inc. a. Prepare a multiple-step income statement for the year ended December 31, 2016, concluding with earnings per share. In computing earnings per share, assume that the average number of common shares outstanding was 100,000 and preferred dividends were 100,000. (Round earnings per share to the nearest cent.) b. Prepare a retained earnings statement for the year ended December 31, 2016. c. Prepare a balance sheet in report form as of December 31, 2016.arrow_forwardSelected transactions completed by Equinox Products Inc. during the fiscal year ended December 31, 2016, were as follows: a. Issued 15,000 shares of 0 par common stock at 0, receiving cash. b. Issued 4,000 shares of 80 par preferred 5% stock at 100, receiving cash. c. Issued 500,000 of 10-year, 5% bonds at 104, with interest payable semiannually. d. Declared a quarterly dividend of 0.50 per share on common stock and 1.00 per share on preferred stock. On the date of record, 100,000 shares of common stock were outstanding, no treasury shares were held, and 20,000 shares of preferred stock were outstanding. e. Paid the cash dividends declared in (d). f. Purchased 7,500 shares of Solstice Corp. at 40 per share, plus a 150 brokerage commission. The investment is classified as an available-for-sale investment. g. Purchased 8,000 shares of treasury common stock at 33 per share. h. Purchased 40,000 shares of Pinkberry Co. stock directly from the founders for 24 per share. Pinkberry has 125,000 shares issued and outstanding. Equinox Products Inc. treated the investment as an equity method investment. i. Declared a 1.00 quarterly cash dividend per share on preferred stock. On the date of record, 20,000 shares of preferred stock had been issued. j. Paid the cash dividends to the preferred stockholders. k. Received 27,500 dividend from Pinkberry Co. investment in (h). l. Purchased 90,000 of Dream Inc. 10-year, 5% bonds, directly from the issuing company, at their face amount plus accrued interest of 375. The bonds are classified as a held- to-maturitv long-term investment. m. Sold, at 38 per share, 2,600 shares of treasury common stock purchased in (g). n. Received a dividend of 0.60 per share from the Solstice Corp. investment in (f). o. Sold 1,000 shares of Solstice Corp. at 545, including commission. p. Recorded the payment of semiannual interest on the bonds issued in (c) and the amortization of the premium for six months. The amortization is determined using the straight-line method, q. Accrued interest for three months on the Dream Inc. bonds purchased in (1). r. Pinkberry Co. recorded total earnings of 240,000. Equinox Products recorded equity earnings for its share of Pinkberry Co. net income. s. The fair value for Solstice Corp. stock was 39.02 per share on December 31, 2016. The investment is adjusted to fair value, using a valuation allowance account. Assume Valuation Allowance for Available-for-Sale Investments had a beginning balance of zero. Instructions Journalize the selected transactions. After all of the transactions for the year ended December 31, 2016, had been posted [including the transactions recorded in part (1) and all adjusting entries], the data that follows were taken from the records of Equinox Products Inc. a. Prepare a multiple-step income statement for the year ended December 31, 2016, concluding with earnings per share. In computing earnings per share, assume that the average number of common shares outstanding was 100,000 and preferred dividends were 100,000. (Round earnings per share to the nearest cent.) b. Prepare a retained earnings statement for the year ended December 31, 2016. c. Prepare a balance sheet in report form as of December 31, 2016. Income statement data: Advertising expense 150,000 Cost of merchandise sold 3,700,000 Delivery expense 30,000 Depreciation expense -office buildings and equipment 30,000 Depreciation expensestore buildings and equipment 100,000 Dividend revenue 4,500 Gain on sale of investment 4,980 Income from Pinkberry Co. investment 76,800 Income tax expense 140,500 Interest expense 21,000 Interest revenue 2,720 Miscellaneous administrative expense 7.500 Miscellaneous selling expense 14,000 Office rent expense 50,000 Office salaries expense 170,000 Office supplies expense 10,000 Sales 5,254,000 Sales commissions 185,000 Sales salaries expense 385,000 Store supplies expense 21,000 Retained earnings and balance sheet data: Accounts payable 194,300 Accounts receivable 545,000 Accumulated depreciationoffice buildings and equipment 1,580,000 Accumulated depreciationstore buildings and equipment 4,126,000 Allowance for doubtful accounts 8,450 Available for sale investments (at cost) 260,130 Bonds payable. 5%. due 2024 500,000 Cash 246,000 Common stock, 20 par (400,000 shares authorized; 100,000 shares issued. 94,600 outstanding) 2,000,000 Dividends: Cash dividends for common stock 155,120 Cash dividends for preferred stock 100,000 Goodwill 500,000 Income tax payable 44,000 Interest receivable 1,125 Investment in Pinkberry Co. stock (equity method) 1,009,300 Investment in Dream Inc. bonds (long term) 90,000 Merchandise inventory [December 31, 2016). at lower of cost (FIFO) or market 778,000 Office buildings and equipment 4.320,000 Paid-in capital from sale of treasury stock 13,000 Excess of issue price over parcommon stock 886,800 Excess of issue price over parpreferred stock 150,000 Preferred 5% stock. 80 par (30,000 shares authorized; 20,000 shares issued] 1,600,000 Premium on bonds payable 19,000 Prepaid expenses 27,400 Retained earnings, January 1, 2016 9,319,725 Store buildings and equipment 12,560,000 Treasury stock (5,400 shares of common stock at cost of 33 per share) 178,200 Unrealized gain (loss) on available for sale investments (6,500) Valuation allowance for available for sale investments (6,500)arrow_forwardThe following selected transactions and events occurred during 2013: a. Issued 200 shares of preferred stock for 20,000. b. Sold 800 shares of treasury stock for 2,800. c. Declared and issued a 4% common stock dividend. The market value on the date of declaration was 5 per share. d. Generated a net loss for the year of 16,000. e. Declared and paid the full years dividend on all the preferred stock and a dividend of 15 per share on common stock outstanding at the end of the year. Enter beginning balances for 2013 on STOCKEQ2. Then erase all 2012 entries and enter the transactions for 2013. Save the results as STOCKEQ4. Print the results.arrow_forward
- St. Marie Company is authorized to issue 1,000,000 shares of $5 par value preferred stock, and 5,000,000 shares of $1 stated value common stock. During the year, the company has the following transactions: Journalize the transactions.arrow_forwardChen Corporation began 2012 with the following stockholders equity balances: The following selected transactions and events occurred during the year: a. Issued 10,000 shares of common stock for 60,000. b. Purchased 1,200 shares of treasury stock for 4,800. c. Sold 2,000 shares of treasury stock for 11,000. d. Generated net income of 94,000. e. Declared and paid the full years dividend on preferred stock and a dividend of 1.00 per share on common stock outstanding at the end of the year. Chen Corporation maintains several paid-in capital accounts (Paid-in Capital in Excess of Par, Paid-in Capital from Treasury Stock, etc.) in its ledger, but combines them all as Additional paid-in capital when preparing financial statements. Open the file STOCKEQ from the website for this book at cengagebrain.com. Enter the formulas in the appropriate cells on the worksheet. Then fill in the columns to show the effect of each of the selected transactions and events listed earlier. Enter your name in cell A1. Save the completed worksheet as STOCKEQ2. Print the worksheet. Also print your formulas. Check figure: Total stockholders equity balance at 12/31/12 (cell G21). 398,800.arrow_forwardChen Corporation began 2012 with the following stockholders equity balances: The following selected transactions and events occurred during the year: a. Issued 10,000 shares of common stock for 60,000. b. Purchased 1,200 shares of treasury stock for 4,800. c. Sold 2,000 shares of treasury stock for 11,000. d. Generated net income of 94,000. e. Declared and paid the full years dividend on preferred stock and a dividend of 1.00 per share on common stock outstanding at the end of the year. Chen Corporation maintains several paid-in capital accounts (Paid-in Capital in Excess of Par, Paid-in Capital from Treasury Stock, etc.) in its ledger, but combines them all as Additional paid-in capital when preparing financial statements. In the space provided below, prepare the stockholders equity section of Chen Corporations balance sheet as of December 31, 2012. Use proper headings and provide full disclosure of all appropriate information. Chens corporate charter authorizes the issuance of 1,000 shares of preferred stock and 100,000 shares of common stock.arrow_forward
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