Question

In: Accounting

Penland Corporation is authorized to issue both preferred and common stock. The par value of the...

Penland Corporation is authorized to issue both preferred and common stock. The par value of the preferred is $50. During the first year of operations, the company had the following events and transactions pertaining to its preferred stock.

Feb. 1 Issued 40,000 shares for cash at $51 per share.
July 1 Issued 60,000 shares for cash at $56 per share.

Instructions

(a) Journalize the transactions.

(b) Post to the stockholders' equity accounts. (Use T‐accounts.)

(c) Discuss the statement presentation of the accounts.

Solutions

Expert Solution

Solution a:

Journal Entries - Penland Corporation
Date Particulars Debit Credit
1-Feb Cash Dr $2,040,000.00
       To Preferred stock $2,000,000.00
       To Paid in capital in excess of par - Preferred stock $40,000.00
(To record issue of preferred stock)
1-Jul Cash Dr $3,360,000.00
       To Preferred stock $3,000,000.00
       To Paid in capital in excess of par - Preferred stock $360,000.00
(To record issue of preferred stock)

Solution b:

Preferred Stock
Date Debit Date Credit
1-Feb $2,000,000.00
1-Jul $3,000,000.00
Paid in capital in excess of par - Preferred stock
Date Debit Date Credit
1-Feb $40,000.00
1-Jul $360,000.00

Solution c:

Preferred stock would be a part of the Stockholders' Equity section in balance sheet and will be reported along with common stock, retained earnings, and treasury stock. Presentation would be as follows:

Preferred stock, $50 par value, 100000 issued and outstanding - 5000000
Paid in capital in excess of par - Preferred stock - 400000


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