Question

On 2009 May 1, Farmington Company received a charter that authorized it to issue:

• 4,000 shares of convertible no-par preferred stock to which a stated value of $ 12 per share is assigned.
• 1,500 shares of $ 400 par value, $ 20 cumulative preferred stock.
• 60,000 shares of no-par common stock to which a stated value of $ 40 is assigned.

May 1 All of the cumulative preferred was issued at $ 204 per share, cash.

2 All of the $ 20 cumulative preferred was exchanged for merchandise inventory, land, and buildings valued at $ 128,000, $ 160,000, and $ 425,000, respectively.

3 Cash of $ 15,000 was paid to reimburse promoters for costs incurred for accounting, legal, and printing services. In addition, 1,000 shares of common stock were issued to the promoters for their services. The value of all of the services (including those paid in cash) was $ 55,000.

1. Prepare journal entries for these transactions.
2. Assume that retained earnings were $ 200,000. Prepare the stockholders’ equity section of the 2009 May 31, balance sheet.

Answer 1

Answer:

Question 1

Journal entries

Date	General Journal	Debit	Credit
May 1	Cash	$       8,16,000
	Preferred stock		$           48,000
	Add. Paid-in Capital in excess of stated value – Preferred		$       7,68,000
	(To record Preferred stock issued for cash)
May-02	Merchandise Inventory	$       1,28,000
	Land	$       1,60,000
	Buildings	$       4,25,000
	Preferred Stock		$       6,00,000
	Add. Paid-in Capital in excess of Par value – Preferred		$       1,13,000
	(To record Preferred stock for Land, Building and inventory)
May-03	Organization costs	$           55,000
	Cash		$           15,000
	Common stock		$           40,000
	(To record reimbursement of promoters)

.

Question 2

Shareholders’ Equity:

Paid In Capital:

Preferred Stock – Convertible, no-par, $12 stated value cumulative;

4,000 shares authorized, issued and outstanding 48,000

Preferred Stock – $400 Par value,$20 cumulative;

1,500 shares authorized, issued and outstanding                                                               600,000

Common Stock – Without par value, stated value,$40;

60,000 shares authorized, 1000 shares issued and outstanding 40,000

Paid-in Capital in excess of par (stated) Value:

From Preferred stock issuances                                                                                      881,000

Total Paid in Capital                                                                                                                                         1,569,000

Retained Earnings                                                                                                                                            200,000              

Total Stockholders’ Equity 1,769,000