Concept explainers
1.
Journal Entries
Journal entries are recording of financial transactions which is related to the business in the book of accounts in such a way the debit equal to the credit.
To determine:Explanation of transactions from a. to d
1.
Explanation of Solution
Following are the explanation of each
- Issued 10,000 ($250,000/25) shares of common stock for $300,000 cash.
- Issued 5,000 ($125,000/25) shares of common stock in exchange for services rendered to organize the corporation valued at $150,000.
- Issued 2,000 ($50,000/$25) shares of common stock and a note payable for $595,000 in exchange for $43,000 cash,
account receivable valued at $15,000, and a building valued at 81,500. - Issued 3,000 ($75,000/25) shares of common stock for $120,000 cash.
2.
Outstanding shares
Outstanding shares are the company’s stock which are currently held by shareholders, investors, financial institutions and restricted shares owned by company’s officers and insiders.
To determine: Calculate the number of outstanding shares of common stock.
2.
Answer to Problem 1PSA
Number of outstanding common share at the year-end is 20,000.
Explanation of Solution
Following are the calculation of number of outstanding shares.
Transaction | Face Value | Par Value | No. of outstanding share
| No. of outstanding share |
a. | $250,000 | $25 | 10,000 | |
b. | $125,000 | $25 | 5,000 | |
c. | $50,000 | $25 | 2,000 | |
d. | $75,000 | $25 | 3,000 | |
Total | 20,000 |
Minimum Legal Capital
Minimum legal capital requirement is maintained to ensure sufficient asset base to satisfy the claim of creditors in the event of insolvency or financial instability,
To determine: Calculate the minimum legal capital at the year-end based on par value.
Answer to Problem 1PSA
Minimum legal capital at the year-end based on par value is $500,000
Explanation of Solution
Calculation of Minimum legal capital at the year-end based on par value:
|
Paid-in Capital
Paid-in capital are refer as a contribution which are made by investors through purchase of stock at par in the organization.
To determine: Calculate the total paid-in capital at the year-end.
Answer to Problem 1PSA
Total paid-in capital at the year-end is $650,000.
Explanation of Solution
Transaction | No. ofshare | Par Value | Face Value | Premium |
a. | 10,000 | $25 | $250,000 | 50,000 |
b. | 5,000 | $25 | $125,000 | 25,000 |
c. | 2,000 | $25 | $50,000 | 30,000 |
d. | 3,000 | $25 | $75,000 | 45,000 |
Total | 20,000 | $500,000 | 150,000 |
Therefore,
Particulars | Amount ($) |
Face value of shares | $500,000 |
Premium on shares | $150,000 |
Total Paid-in Capital | $650,000 |
Paid-in Capital
Paid-in capital are refer as a contribution which are made by investors through purchase of stock at par in the organization.
To determine:Calculate book value of common stock per share if
Answer to Problem 1PSA
Book-value per share of common stock is equal to $34.75
Explanation of Solution
Calculation of book-value per share:
Particulars | Amount $ |
Total paid-in capital plus retained earnings | 695,000 |
Number of shares | 20,000 |
Book value per share
| 34.75 |
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Chapter 11 Solutions
FINANCIAL ACCT-CONNECT
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