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Issuing stock Work Place Products Inc., a wholesaler of office products, was organized on July 1 of the current year, with an authorization of 50,000 shares of preferred 2% stock, $40 par, and 750,000 shares of $7 par common stock. The following selected transactions were completed during the first year of operations: July 1. Issued 400,000 shares of common stock at par for cash. 1. Issued 1,000 shares of common stock at par to an attorney in payment of legal fees for organizing the corporation. Aug. 7. Issued 80,000 shares of common stock in exchange for land, buildings, and equipment with fair market prices of $250,000, $400,000, and $70,000, respectively. Sept. 20. Issued 25,000 shares of preferred stock at $44 for cash. Journalize the transactions.

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 13, Problem 8E
Textbook Problem
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Issuing stock

Work Place Products Inc., a wholesaler of office products, was organized on July 1 of the current year, with an authorization of 50,000 shares of preferred 2% stock, $40 par, and 750,000 shares of $7 par common stock. The following selected transactions were completed during the first year of operations:

July 1. Issued 400,000 shares of common stock at par for cash.

1. Issued 1,000 shares of common stock at par to an attorney in payment of legal fees for organizing the corporation.

Aug. 7. Issued 80,000 shares of common stock in exchange for land, buildings, and equipment with fair market prices of $250,000, $400,000, and $70,000, respectively.

Sept. 20. Issued 25,000 shares of preferred stock at $44 for cash.

Journalize the transactions.

To determine

Journalize the transactions.

Explanation of Solution

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.

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.

Issue of common stock for non cash assets or services: Corporations often issue common stock for the services received from attorneys or consultants as compensation, or for the purchase of non cash assets such as land, buildings, or equipment.

Record the journal entry for the issuance of common stock on July 1.

DateAccount Titles and ExplanationDebit ($)Credit ($)
July 1Cash 2,800,000
    Common Stock (40,000 shares×$7)2,800,000
(To record the issuance of common stock at par)
 
July 1Organizational expense 7,000 
    Common Stock (1,000 shares×$7) 7,000
 (To record the issuance of common stock at par)  

Table (1)

Description:

  • 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.
  • Organization expense is an expense which should be recognized, to record the legal payment made the attorney for organizing the corporation. Organization expense has been increased by $7,000. Therefore, debit Organization expense account with the amount of payment made.
  • 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.

Journalize the issuance of the stock in exchange of land, buildings, and equipment on August 7.

DateAccount Titles and ExplanationDebit ($)Credit ($)
August 7Land 250,000
 Buildings400,000 
 Equipment70,000 
      Common stock (80,000 shares×$7)560,000
 

      Paid-in capital in excess of par – 

      Common stock (Balancing figure)

 160,000
(To record issuance of shares in excess of par value in exchange of assets)

Table (2)

Description:

  • Land is an asset account

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Chapter 13 Solutions

Financial Accounting
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