Question

The shareholders’ equity section of Superior Corporation’s balance sheet as of December 31, 2015, is as follows:

Shareholders’ Equity
Preferred stock, $100 par value; authorized, 300,000 shares; issued, 32,500 shares	$3,250,000
Common stock, $5 par value; authorized, 2,000,000 shares; issued, 442,000 shares	2,210,000
Paid-in capital in excess of par—preferred	87,000
Paid-in capital in excess of par—common	875,000
Retained earnings	2,980,000
The following events occurred during 2016: Jan. 5 10,000 shares of authorized and unissued common stock were sold for $6 per share. 16 12,000 shares of authorized and unissued preferred stock were sold for $107 per share. Apr. 1 78,000 shares of common stock were repurchased for the treasury at a price of $17 per share. Superior uses the cost method to account for treasury stock. Sept. 1 2,500 shares of preferred stock are issued in exchange for a piece of land. The land has an appraised value of $280,500. The preferred stock currently trades on the New York Stock Exchange at a price of $109 per share. Dec. 1 25,000 shares of treasury stock are reissued at a price of $25 per share. Required: 1. Prepare journal entries for each of the above transactions. 2. Calculate the number of authorized, issued, and outstanding common shares as of December 31, 2016. 3. Calculate Superior’s legal capital on December 31, 2016.	$9,402,000

Answer 1

Solution 1:

Journal Entries - Superior Corporation
Date	Particulars	Debit	Credit
5-Jan	Cash Dr (10000*$6)	$60,000.00
	To Common Stock		$50,000.00
	To Paid-in capital in excess of par—common		$10,000.00
	(To record issue of common stock)
16-Jan	Cash Dr (12000*$107)	$1,284,000.00
	To Preferred Stock (12000*$100)		$1,200,000.00
	To Paid-in capital in excess of par—Preferred (12000*$7)		$84,000.00
	(To record issue of preferred stock)
1-Apr	Treasury stock Dr (78000*$17)	$1,326,000.00
	To Cash		$1,326,000.00
	(To record purchase of own shares)
1-Sep	Land Dr	$280,500.00
	To Preferred Stock		$250,000.00
	To Paid-in capital in excess of par—Preferred		$30,500.00
	(To record purchase of land)
1-Dec	Cash Dr (25000*$25)	$625,000.00
	To Teasury stock (25000*$17)		$425,000.00
	To Paid in capital from treasury stock		$200,000.00
	(To record reissue of treasury stock)

Solution 2:

Nos of authorized common shares = 2000000 shares

Nos of issued common shares = 442000 + 10000 = 452000 shares

Nos of outstanding common shares = 452000 - 78000 + 25000 = 399000 shares

Solution 3:

Legal capital is par value of preferred and common stock issued:

Par value of common stock issued = 452000 * $5 =$2,260,000

Par value of preferred stock issued = (32500 + 12000+ 2500) * $100 = $4,700,000