Chapter 15, Problem 9P

1 (1)

To determine

Identify the legal capital of the corporation.

Explanation of Solution

Legal capital: It is an amount of capital which is restricted for the purpose of dividends and other distributions.

The legal capital of corporation is $374,000$\left(\$190,000+\$184,000\right)$.

1 (2)

To determine

Identify the average issue price per share of the preferred stock

Explanation of Solution

Preferred stock: The stock that provides a fixed amount of return (dividend) to its stockholder before paying dividends to common stockholders is referred as preferred stock.

The average issue price per share of the preferred stock is $108$\left[\frac{\left(\text{\$190,000}+\text{\$15,200}\right)}{\text{1,900 shares}}\right]$.

1 (3)

To determine

Identify the number of common stock have been issued.

Explanation of Solution

Common stock: The amount invested in the corporation by an investor to receive a return or share of profit from the profits earned by the corporation is known as common stock.

Compute number of common shares issued.

$\begin{array}{c}\begin{array}{l}\text{Number of common }\\ \text{shares issued}\end{array}\}\text{ = }\frac{\text{Common stock capital}}{\text{Average issuance price of common shares}}\\ \text{=}\frac{\text{\$184,000}}{\text{\$23}}\\ \text{= 8,000 shares}\end{array}$

Therefore, the numbers of shares issued are 8,000 shares.

2.

To determine

Prepare the journal entries to record the given transactions in part b.

Explanation of Solution

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Rules of Debit and Credit: Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

• Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
• Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

Prepare the journal entries to record the given transactions in part b:

Date	Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2016
March 2	Cash $\left(\$122\times 350\right)$		42,700
	Preferred Stock $\left(\$100\times 350\right)$			35,000
	Additional Paid-in Capital on Preferred Stock			7,700
	(To record issuance of preferred stock)
April 5	Cash $\left(\$34\times 900\right)$		30,600
	Common Stock, no par			30,600
	(To record issuance of no par common stock)
April 13	Land $\left(\$33\times 400\right)$		13,200
	Common Stock, no par			13,200
	(To record exchange of no par common stock for land)
June 1	Treasury Stock: Common		18,000
	Cash $\left(500\times \$36\right)$			18,000
	(To record reacquisition of common stock)
October 19	Cash		27,000
	Common Stock (1)			15,750
	Preferred Stock			10,000
	Additional Paid-in Capital on Preferred Stock			1,250
	(To record issuance of common and preferred stock)
November 16	Cash $\left(\$38\times 500\right)$		19,000
	Treasury Stock: Common			18,000
	Additional Paid-in Capital from Treasury Stock			1,000
	(To record sale of treasury stock)
December 31	Retained Earnings $\left[\left(1,900+350+100\right)\times \left(0.08\times \$100\right)\right]$		18,800
	Cash			18,800
	(To record payment of preferred dividends)
December 31	Retained Earnings $\left[\left(8,000+900+400+500\right)\times \$2\right]$		19,600
	Cash			19,600
	(To record payment of common dividends)

Table (1)

Working note 1: Calculate the allocation of proceedings:

Particulars	Calculations	Amount ($)
Common stock	$\frac{\left(\$35\times 500\text{shares}\right)}{\left[\left(\$35\times 500\text{shares}\right)+\left(100\times \$125\right)\right]}\times \$27,000$	$15,750
Preferred stock	$\frac{\left(\$125\times 100\text{shares}\right)}{\left[\left(\$35\times 500\text{shares}\right)+\left(100\times \$125\right)\right]}\times \$27,000$	$11,250
		$27,000

Table (2)

3.

To determine

Prepare the contributed capital section of Corporation Y as on December 31, 2016.

Explanation of Solution

Prepare the contributed capital section of Corporation Y as on December 31, 2016:

Corporation Y
Shareholders' Equity
December 31, 2016
Contributed capital:
Preferred stock, 8%, $100 par (6,000 shares authorized; 2,350 shares issued, and outstanding)	$235,000
Common stock, no par (24,000 shares authorized, 9,800 shares issued and outstanding)	243,550
Additional paid-in capital on preferred stock	24,150
Additional paid-in capital from treasury stock	1,000
Total contributed capital	$503,700

Table (3)

Therefore, the total contributed capital is $503,700.