Question

On December 1 of the current year, the following accounts and their balances appear in the ledger of Latte Corp., a coffee processor:

Preferred 2% Stock, $50 par (240,000 shares authorized, 86,000 shares issued)	$4,300,000
Paid-In Capital in Excess of Par—Preferred Stock	516,000
Common Stock, $30 par (1,000,000 shares authorized, 415,000 shares issued)	12,450,000
Paid-In Capital in Excess of Par—Common Stock	1,245,000
Retained Earnings	184,170,000

At the annual stockholders’ meeting on March 31, the board of directors presented a plan for modernizing and expanding plant operations at a cost of approximately $11,000,000. The plan provided (a) that a building, valued at $3,360,000, and the land on which it is located, valued at $945,000, be acquired in accordance with preliminary negotiations by the issuance of 123,000 shares of common stock, (b) that 38,800 shares of the unissued preferred stock be issued through an underwriter, and (c) that the corporation borrow $3,700,000. The plan was approved by the stockholders and accomplished by the following transactions:

May 11	Issued 123,000 shares of common stock in exchange for land and a building, according to the plan.
20	Issued 38,800 shares of preferred stock, receiving $52 per share in cash.
31	Borrowed $3,700,000 from Laurel National, giving a 5% mortgage note.

Journalize the entries to record the May transactions. Refer to the Chart of Accounts for exact wording of account titles.

Chart of Accounts

CHART OF ACCOUNTS
Latte Corp.
General Ledger
ASSETS 110 Cash 120 Accounts Receivable 131 Notes Receivable 132 Interest Receivable 141 Merchandise Inventory 145 Office Supplies 151 Prepaid Insurance 181 Land 191 Building 192 Accumulated Depreciation-Buildings LIABILITIES 210 Accounts Payable 221 Notes Payable 226 Interest Payable 231 Cash Dividends Payable 236 Stock Dividends Distributable 241 Salaries Payable 261 Mortgage Note Payable EQUITY 311 Common Stock 312 Paid-In Capital in Excess of Par-Common Stock 315 Treasury Stock 321 Preferred Stock 322 Paid-In Capital in Excess of Par-Preferred Stock 331 Paid-In Capital from Sale of Treasury Stock 340 Retained Earnings 351 Cash Dividends 352 Stock Dividends 390 Income Summary	REVENUE 410 Sales 610 Interest Revenue EXPENSES 510 Cost of Merchandise Sold 515 Credit Card Expense 520 Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Selling Expenses 534 Rent Expense 535 Insurance Expense 536 Office Supplies Expense 537 Organizational Expenses 561 Depreciation Expense-Building 590 Miscellaneous Expense 710 Interest Expense

Journal

Journalize the entries to record the May transactions. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
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9

Answer 1

Date	Description	Post. Ref.	Debit	Credit
May 11	Building		$3360000
	Land		$945000
	Common Stock			$3690000
	Paid-In Capital in Excess of Par-      Common Stock			$615000
	(For recording purchase of land & building and issued common stock
May 20	Cash		$2017600
	Preferred Stock			$1940000
	Paid-In Capital in Excess of Par-      Preferred Stock			$77600
	(For recording issue of preferred stock)
May 31	Cash		$3700000
	Mortgage Note Payable			$3700000
	(For recording borrowed money from Laurel National)

Working Note;

1. Paid-In Capital in Excess of Par-Common Stock is calculated as follow;

($3360000 + $945000 – $3690000) = $615000

2. Paid-In Capital in Excess of Par-Preferred Stock is calculated as follow;

(38800 * $2) = $77600