Question

Tunic Corporation was organized on April 1 of the current year, with an authorization of 25,000 shares of 6%, $50 par value preferred stock and 200,000 shares of $5 par value common stock. During April, the following transactions affecting stockholders’ equity occurred.

April 1    Issued 80,000 shares of common stock at $15 per share.

3. Issued 2,000 shares of common stock to attorneys and promoters in exchange for their services in organizing the corporation. The services were valued at $31,000.

8. Issued 3,000 shares of common stock in exchange for equipment with a fair market value of $48,000.

17. Received land valued at $75,000 as a donation from the city to attract Tunic to      its present location. The land will allow Tunic to have adequate parking for its operations.    

20. Issued 6,000 shares of preferred stock for cash at $55 per share.

30 Closed the $49,000 net income for April from the Income Summary account to Retained Earnings.

REQUIRED:

A Prepare general journal entries to record the foregoing transactions.

  B. Prepare the stockholders’ equity section of the balance sheet at April 30.   

Answer 1

A. Preparation of general journal entries to record the transactions.

Journal Entries	Debit	Credit
Cash A/c	$1,200,000
Common Stock A/c (80,000 * $5)		$400,000
Paid in excess of par value - Common ($1,200,000 - $400,000)		$800,000
[To record issue of Common stock]
Legal expenses A/c	$31,000
Common Stock A/c (2,000 * $5)		$10,000
Paid in excess of par value - Common ($31,000 - $10,000)		$21,000
[To record issue of Common stock in exchange of legal service expenses]
Equipment A/c	$48,000
Common Stock A/c (3,000 * $5)		$15,000
Paid in excess of par value - Common ($48,000 - $15,000)		$33,000
[To record issue of Common stock in exchange of Equipments]
Land A/c	$75,000
Contributions Revenue A/c		$75,000
[To record Land received as a donation]
Cash A/c	$330,000
Preference Stock A/c (6,000 *$50)		$300,000
Paid in excess of par value - Common ($330,000 - $300,000)		$30,000
[To record issue of Preferred stock]
Net Income A/c	$49,000
Retained earnings A/c		$49,000
[To transfer Net Income to Retained Earnings A/c

B. Preparation of the stockholders’ equity section of the balance sheet at April 30.

Partial Balance Sheet
Particulars	Amount
Stockholder's Equity Section
Paid in Capital:
Common Stock ($400,000 + $10,000 + $15,000)	$425,000
Preferred Stock	$300,000
	$725,000
Additional Paid-in Capital
Paid-in Capital in excess of par value:
Common Stock ($800,000 + $21,000 + $33,000)	$854,000
Preferred Stock	$30,000
	$884,000
Retained Earnings A/c	$49,000
Total Shareholder's Equity	$1,658,000