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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 no-par stock

On February 12, Quality Carpel Inc., a carpet wholesaler, issued for cash 1,000,000 shares of no-par common stock (with a stated value of $0.25) at $1.20, and on August 3, it issued for cash 10,000 shares of preferred stock, $15 par at $21.

  1. a. Journalize the entries for February 12 and August 3, assuming that the common stock is to be credited with the stated value.
  2. b. What is the total amount invested (total paid-in capital) by all stockholders as of August 3?

(a)

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.

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 for February 12 and August 3.

Explanation

Record the issuance of common stock on February 12.

Date Account Titles and Explanation Debit ($) Credit ($)
February 12 Cash (1,000,000 shares×$1.20) 1,200,000
      Common Stock (1,000,000 shares×$0.25) 250,000

      Paid-in Capital in Excess of Par value –

      Common stock ($1,200,000$250,000)

950,000
(To record issuance of 1,000,000 shares in excess of par value)

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 Par Value is a stockholders’ equity account and the amount is increased due to increase in capital. Therefore, credit Paid-in Capital in Excess of Par Value account with the amount of cash received in excess of common stock value

(b)

To determine
The total paid in capital as of August 3.

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