Question

Part 1: Common and Preferred Stock Issuance

Worthington Corporation filed its Articles of Incorporation, authorizing 15,000 shares of $100 par value preferred stock and 40,000 shares of no-par common stock. The following transactions occurred in the current year:

1. 8,000 shares of common stock are issued to the founders of the corporation in exchange for land valued by the board of directors at $300,000. The board establishes a stated value of $5 per share for the common stock.
2. 5,000 shares of preferred stock are sold for cash at $120 per share.
3. The company issues 100 shares of common stock to its attorneys for costs associated with starting the company. At that time, the common stock was selling at $60 per share.

Required

Prepare the journal entries necessary to record these transactions.

Answer 1

Working note: -

Company has no par value common stock, which means there is no face value. But the directors stated $5 per share on purchase of land. Thus, any amount in excess of this stated value will be treated as additional paid in capital.

Purchase price = $300,000

Stated value = $5 x 8,000 shares = $40,000

Additional paid in capital = $300,000 - $40,000 = $260,000

Working note: -

Preferred shares are issued at a premium of $20 each. Premium is credited to Additional paid in capital preferred stock.

Working note: -

Since there is no stated value. complete cost of attorney is credited to common stock.

Attorney cost = 100 shares x $60 = $6,000