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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Entries for issuing stock

On May 23, Stoltz Realty Inc. issued for cash 80,000 shares of no-par common stock (with a staled value of $3) at $12. On July 6, Stollz Realty Inc. issued at par value 18,000 shares of preferred 1% stock, $50 par for cash. On September 15, Stoltz Really Inc. issued for cash an additional 50,000 shares of no-par common stock (with a stated value of $3) for $15. Journalize the entries to record the May 23, July 6, and September 15 transactions.

To determine

Common stock: These are the ordinary shares that a corporation issues to the investors in order to raise funds. In return, the investors receive a share of profit from the profits earned by the corporation in the form of dividend.


Stated value:
It refers to an amount per share, which is assigned by the board of directors to no par value stock.

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.

To Journalize: The entries to record the transactions made on May 23, July 6, and September 15.

Explanation

Record the issuance of stated value common stock.

Date Account Titles and Explanation Debit ($) Credit ($)
May 23 Cash (80,000 shares×$12) 960,000
      Common Stock (80,000 shares×$3) 240,000

      Paid-in Capital in Excess of Stated value

($960,000$240,000)

720,000
(To record issuance of 80,000 shares in excess of stated value per share)

Table (1)

  • Cash is an asset account. The amount is increased, because cash is received upon stock issued. Therefore, debit Cash account with the amount of cash received.
  • Common Stock is a stockholders’ equity account and the amount is increased due to issuance of common stock. Therefore, credit Common Stock account with the value of common stock.
  • Paid-in Capital in Excess of Stated Value is a stockholders’ equity account and the amount is increased due to increase in capital. Therefore, credit Paid-in Capital in Excess of Stated Value account with the amount of cash received in excess of common stock value.

Record the journal entry for the issuance of preferred stock.

Date Account Titles and Explanation Debit ($) Credit ($)
July 6 Cash (18,000 shares×$50) 900,000
   Preferred Stock                         900,000
(To record the issuance of preferred stock in excess of par value)

Table (2)

  • Cash is an asset account

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