Question

(1) Equity transactions.

Presented below is information related to Chen Company:

(1) The company is granted a charter that authorizes issuance of 20,000 shares of $45 par value preferred stock and 50,000 shares of no-par common stock.

(2) 12,500 shares of common stock are issued to the founders of the corporation for land valued by the board of directors at $225,000. The board establishes a stated value of $6 a share for the common stock.

(3) 7,250 shares of preferred stock are sold for cash at $63 per share.

(4) The company issues 145 shares of common stock to its attorneys for costs associated with starting the company. At that time, the common stock was selling at $74 per share.

Instructions Prepare the general journal entries necessary to record these transactions. How would the journal entries change if there was no par value listed on the common stock?

Answer 1

Answer 1

No enrty on authorisation of Capital.

Answer 2

Land A/c          Dr.                       225000

       To Common stock (12500*6) 75000

       To Excess of Issue Price over Par -Common (Balancing figure) 150000

(Being 12500 Common Stock Share Issued)

Answer 3

Cash A/c (7250*63) Dr.                   456750

       To Preferred Stock A/c (7250@45) 326250

       To Excess of Issue Price over Par -Preferred (7250*18) 130500

(Being 7250 Preferred Stock Share Issued)

Answer 4

Preiminary Expenses (Incorporation Expenses) A/c (145*74) Dr.        10730

        To Common stock    (6*145) 870

        To Excess of Issue Price over Par -Common (145*68) 9870

(Being 145 Common Stock Share Issued)

Change in Entries if no par value exists for common stock.

Change in Answer 2

Land A/c          Dr.                       225000

       To Common stock (12500*18) 225000

(Being 12500 Common Stock Share Issued)

Change in Answer 4.

Preiminary Expenses (Incorporation Expenses) A/c (145*74) Dr.        10730

To Common stock (74*145) 10730

(Being 145 Common Stock Share Issued)

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