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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Stock transactions for corporate expansion

Vaga Optics produces medical lasers for use in hospitals. The following accounts and their balances appear in the ledger of Vaca Optics on December 31 of the current year:


At the annual stockholders' meeting on January 31, the board of directors presenled a plan for modernizing and expanding plant operatioas at a cost of approximately $9,500,000. The plan provided (a) that the corporation borrow $4,500,000, (b) that 20,000 shares of the unissued preferred stock be issued through an underwriter, and (c) thai a building, valued at $1,200,000, and the land on which it is located, valued at $900,000, be acquired in accordance with preliminary negotiations by the issuance of 27,400 shares of common stock. The plan was approved by the stockholders and accomplished by the following transactions:
Mar. 8.Borrowed $4,500,000 from Conrad National Bank, giving a 6% mortgage note.
13- Issued 20,000 shares of preferred stock, receiving $130 per share in cash.
26.Issued 27,400 shares of common stock in exchange for land and a building, according to the plan.
No other expansion-related transactions occurred during March.

Instructions

Illustrate the effects on the accounts and financial statements of each of the preceding transactions.

To determine

Concept introduction:

Stock:

The stock, also known as shares, which gives equity ownership and rights in the company in regard to voting for policies and to share profits of the company is termed as stock. The stock is classified as two types, i.e., common and preferred stock.

Bonds:

It is a liability of the company which it has to pay after a certain time along with a fixed rate of interest. This is used by the company for the expansion of the businesses.

The effects on the accounts and financial statements of each transaction provided.

Explanation

V.O.

for the month endedDecember 31

  (Amount in $)

    Balance Sheet
    Assets  =LiabilitiesStockholder's Equity
    DateParticularsCashFixed Assets  =Common StockPaid-in capital in excess of par
    Mar.
      8
    Borrowed
      $4,500,000
    at par giving
      6%
    mortgage note
      4,500,000  4,500,000
      13Issued
      20,000
    preferred stock shares at stock price of
      $130
      2,600,000  2,400,000  200,000
      26Issued
      27,400
    common stock shares for acquiring land worth
      $900,000
    and building worth
      $1,

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