Comprehensive Young Corporation has been operating successfully for several years. It is authorized to issue 24,000 shares of no-par common stock and 6,000 shares of 8%, $100 par
Part a. A shareholder has raised the following questions:
- 1. What is the legal capital of the corporation?
- 2. At what average price per share has the preferred stock been issued?
- 3. How many shares of common stock have been issued (the common stock has been issued at an average price of $23 per share)?
Part b. The company engaged in the following transactions in 2019:
Required:
- 1. Answer the questions in Part a.
- 2. Prepare
journal entries to record the transactions in Part b. - 3. Prepare the Contributed Capital section of Young’s December 31, 2016, balance sheet.
1 (1)
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
1 (2)
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 $108
1 (3)
Identify the number of common stock have been issued.
Explanation of Solution
Common stock: The amount invested in the corporation by an investor to receive a return or share of profit from the profits earned by the corporation is known as common stock.
Compute number of common shares issued.
Therefore, the numbers of shares issued are 8,000 shares.
2.
Prepare the journal entries to record the given transactions in part b.
Explanation of Solution
Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.
Rules of Debit and Credit: Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
- Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
- Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.
Prepare the journal entries to record the given transactions in part b:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) |
2019 | ||||
March 2 | Cash | 42,700 | ||
Preferred Stock | 35,000 | |||
Additional Paid-in Capital on Preferred Stock | 7,700 | |||
(To record issuance of preferred stock) | ||||
April 5 | Cash | 30,600 | ||
Common Stock, no par | 30,600 | |||
(To record issuance of no par common stock) | ||||
April 13 | Land | 13,200 | ||
Common Stock, no par | 13,200 | |||
(To record exchange of no par common stock for land) | ||||
June 1 | Treasury Stock: Common | 18,000 | ||
Cash | 18,000 | |||
(To record reacquisition of common stock) | ||||
October 19 | Cash | 27,000 | ||
Common Stock (1) | 15,750 | |||
Preferred Stock | 10,000 | |||
Additional Paid-in Capital on Preferred Stock | 1,250 | |||
(To record issuance of common and preferred stock) | ||||
November 16 | Cash | 19,000 | ||
Treasury Stock: Common | 18,000 | |||
Additional Paid-in Capital from Treasury Stock | 1,000 | |||
(To record sale of treasury stock) | ||||
December 31 | Retained Earnings | 18,800 | ||
Cash | 18,800 | |||
(To record payment of preferred dividends) | ||||
December 31 | Retained Earnings | 19,600 | ||
Cash | 19,600 | |||
(To record payment of common dividends) |
Table (1)
Working note 1: Calculate the allocation of proceedings:
Particulars | Calculations | Amount ($) |
Common stock | $15,750 | |
Preferred stock | $11,250 | |
$27,000 |
Table (2)
3.
Prepare the contributed capital section of Corporation Y as on December 31, 2016.
Explanation of Solution
Note: There is no information available to prepare Contributed capital part of Corporation Y as on December 31, 2016. Based on the given information and requirements it is possible to prepare Contribution capital section for the year 2019. Hence, it is prepared for the year 2019.
Prepare the contributed capital section of Corporation Y as on December 31, 2019:
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.
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Chapter 15 Solutions
Intermediate Accounting: Reporting And Analysis
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