Issuances of Stock Cada Corporation is authorized to issue 10,000 shares of $100 par, convertible, callable preferred stock and 80,000 shares of no-par, no-stated value common stock. There are currently 7,000 shares of preferred and 30,000 shares of common stock outstanding. The following are several alternative transactions:
Required:
Next Level Prepare the journal entry necessary to record each transaction. Below each entry, explain your reason for the values used.
Prepare the necessary journal entries to record the given transactions and give the reasons for the values used in entries.
Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.
Rules of Debit and Credit: Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
Common stock: These are the ordinary shares that a corporation issues to the investors in order to raise funds. In return, the investors receive a share of profit from the profits earned by the corporation in the form of dividend.
Preferred stock: Preferred stock is the cash raised by the company by issuing preferred shares. This investment fetches a preferential right for dividend for the preferred stockholders over the common stockholders.
Treasury Stock: It refers to the shares that are reacquired by the corporation that are already issued to the stockholders, but reacquisition does not signify retirement.
Prepare the necessary journal entries to record the given transactions and give the reasons for the values used in entries:
1. Purchased land by issuing 640 shares of preferred and 1,000 shares of common stock:
Date | Accounts title and Explanation | Post ref. | Debit ($) | Credit ($) |
 | Land |  | $108,320 |  |
 |     Common stock, no par |  |  | $36,000 |
 |     Preferred stock, $100 par |  |  | $64,000 |
 |     Additional paid in capital on preferred stock |  |  | $8,320 |
 | (To record the purchase of land by issuing shares) |  |  |  |
Table (1)
Reason for the amounts used: As the values of the preferred stock and common stock are available, thus, their aggregated value is allocated to land.
2. Purchased land by issuing 640 shares of preferred and 1,000 shares of common stock:
Date | Accounts title and Explanation | Post ref. | Debit ($) | Credit ($) |
 | Land |  | $104,000 |  |
 |     Common stock, no par |  |  | $36,000 |
 |     Preferred stock, $100 par |  |  | $64,000 |
 |     Additional paid in capital on preferred stock |  |  | $4,000 |
 | (To record the purchase of land by issuing shares) |  |  |  |
Table (2)
Reason for the amounts used: As the values of the common stock and land are available, thus, common stock value is deducted from the land value to assign the value to preferred stock.
3. Issue of preferred stock and bonds payable for $99,000.
Date | Accounts title and Explanation | Post ref. | Debit ($) | Credit ($) |
 | Cash |  | $99,000 |  |
 |     Premium on bonds payable |  |  | $1,480 |
 |     Bonds Payable |  |  | 50,000 |
 |     Preferred stock, $100 par |  |  | $40,000 |
 |     Additional paid in capital on preferred stock |  |  | $7,520 |
 | (To record the package sale of preferred stock and bonds payable) |  |  |  |
Table (3)
Working note 1: calculate the allocation of proceedings.
Particulars | Calculations | Amount ($) |
Preferred stock | $47,520 | |
Bonds | $51,480 | |
 |  | $99,000 |
Table (4)
Reason for the amounts used: As the cash was received for the sale of package of securities, the value assigned to both the securities is based on the relative fair value of each security.
4. Issue of preferred stock and bonds payable for $99,000. Bonds don’t have current market value.
Date | Accounts title and Explanation | Post ref. | Debit ($) | Credit ($) |
 | Cash |  | $99,000 |  |
 |     Premium on bonds payable |  |  | $1,000 |
 |     Bonds Payable |  |  | 50,000 |
 |     Preferred stock, $100 par |  |  | $40,000 |
 |     Additional paid in capital on preferred stock  |  |  | $8,000 |
 | (To record the package sale of preferred stock and bonds payable) |  |  |  |
Table (5)
Reason for the amounts used: As the values of cash and preferred stock are available, the values of the preferred stock are deducted from the cash to compute the value allocated to bonds
Financial And Managerial Accounting
Financial Accounting
Corporate Financial Accounting
Accounting Information Systems
Financial & Managerial Accounting
Managerial Accounting: The Cornerstone of Business Decision-Making
College Accounting, Chapters 1-27
Principles of Macroeconomics (MindTap Course List)
Principles of Microeconomics (MindTap Course List)
Fundamentals of Financial Management (MindTap Course List)
Essentials of Business Communication (MindTap Course List)
Essentials of Economics (MindTap Course List)
Contemporary Marketing
Accounting Information Systems
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
Principles of Economics (MindTap Course List)
Management, Loose-Leaf Version
Foundations of Business (MindTap Course List)
ECON: MICRO4 (New, Engaging Titles from 4LTR Press)
MKTG 12:STUDENT ED.-TEXT
STATISTICS F/BUSINESS+ECONOMICS-TEXT
Brief Principles of Macroeconomics (MindTap Course List)
Accounting (Text Only)
Financial Accounting
Financial & Managerial Accounting
College Accounting (Book Only): A Career Approach
Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)
Statistics for Business & Economics, Revised (MindTap Course List)
Exploring Economics
College Accounting (Book Only): A Career Approach
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
Fundamentals of Financial Management (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
Pkg Acc Infor Systems MS VISIO CD
Corporate Financial Accounting
PAYROLL ACCT.,2019 ED.(LL)-TEXT
Survey of Accounting (Accounting I)
Purchasing and Supply Chain Management
Practical Management Science
Microeconomics
Macroeconomics
Cornerstones of Cost Management (Cornerstones Series)
Economics (MindTap Course List)