Question

Motown Corporation has the following transactions:
Common shares issued: 236,000

Par value per share: 1.00 $

Share issue costs in total: 248,000 $

Date issued/purchased: 1/1/X1

Purchased for per share: 33.00

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4.) Consider the required journal entrie(s). What is the NET CREDIT amount that goes to the Paid in Capital account.

5.) Consider the required journal entrie(s). What is the TOTAL impact on stockholder's equity from all journal entries?

If it is an INCREASE simply type in the amount.

If it is a DECREASE type in the amount with a minus sign in front such as -100.

If the answer is no impact type in the number zero "0"

Answer 1

Journal Entries (In Books of Motown Corporation) for following Transaction.

1. Issue of Common stock.

Date : 1/1/X1.

Debit: Cash /Bank A/C $ 7,788,000 (236,000 Common Stock Issue × $ 33 Purchase Price Per Common Stock).

Credit: Common Stock A/C $ 236,000 (236,000 Common Stock Issue × $ 1 Par Value Per Common Stock).

Credit: Additional Paid in Capital - C/S* A/C $ 7,552,000 (236,000 Common Stock Issue × $ 32** excess of Par Value).

(Being 236,000 Common Stock Issued at $ 33 Per Common Stock with Par Value of $ 1 Per Common Stock)

* C/S means Common Stock.

** Additional Paid in Capital Per Share= Purchase Price Per Common Stock (-) Par Value Per Common Stock.

$ 33 (Given) (-) $ 1 (Given).

$ 32 Per Common Stock.

2. Share Issue Costs.

Date: 1/1/X1.

Debit: Share Issue Costs A/C $ 248,000. (Given)

Credit: Cash/Bank A/C $ 248,000 (Given).

(Being Recording of Share Issue Costs of $ 248,000)

Answer:

4.

Concept:

Net Paid in Capital - Sum(Total) of Money Received in case of issue of Common Stock after taking into account any Issue Costs (If Applicable)

Formula:

Net Paid in Capital = Par Value of Common stock issued + Additional paid in Capital (-) Share Issue Costs (If Applicable)

Main Answer:

Net Credit Amount that goes to Paid-in Capital Amount will be $ 7,540,000.

Calculation:

For Details refer Journal Entries prepared.

Net Credit Paid-in Capital = Par Value of Common Stock + Additional Paid in Capital (-) Share Issue Costs (If Applicable).

$ 236,000 (236,000 Common Stock × $ 1 Par Value Per Common Stock ) + $ 7,552,000 ($236,000 Common Stock × $ 32 additional Paid-in Capital Per Common Stock) (-) $ 248,000 (Given).

$ 7,540,000.

Net Credit Balance of Paid in Capital = $ 7,540,000.

5.

Concept:

Stockholders Equity has Credit Balance.

Stockholders Equity total of Common Stock and Additional Paid in Capital and Adjusted for Common Stock Issue Costs (If Applicable).

Main Answer:

For Details Refer Journal Entries Prepared.

Common Stock at Par Value is added to Stockholders Equity.

So, Stockholders Equity will be INCREASED by $ 236,000 ( 236,000 Shares × $ 1 Par Value Per Common Stock).

Additional Paid in Capital is also added to Stockholders Equity.

So, Stockholders Equity will be INCREASED by $ 7,552,000 (236,000 Shares × $ 32 Excess of Par Value Per Common Stock).

Share Issue Costs is adjusted (Subtracted) from Stockholders Equity.

So, Stockholders Equity will be DECREASED by ($ 248,000) [Negative Amount] (Given).

As Cash / Bank are not part of Stockholders Equity change in Cash / Bank Balances will have NO IMPACT on Stockholders Equity. Stockholders Equity change by $0 due change in Cash / Bank Balances.