Cornerstones of Financial Accounting
4th Edition
ISBN: 9781337690881
Author: Jay Rich, Jeff Jones
Publisher: Cengage Learning
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Textbook Question
Chapter 10, Problem 60E
Issuing Common Stock
Carmean Products Inc. sold 32,350 shares of common stock to stockholders at the time of its incorporation. Carmean received S42 per share for the stock.
Required:
- Assume that the stock has a $22 par value per share. Prepare the
journal entry to record the sale and issue of the stock. - Assume that the stock has a $8 stated value per share. Prepare the journal entry to record the sale and issue of the stock.
- Assume that the stock has no par value and no stated value. Prepare the journal entry to record the sale and issue of the stock.
- CONCEPTUAL CONNECTION How do the different par values affect total contributed capital and total stockholders’ equity?
Expert Solution
To determine
(a)
Introduction:
A common stock is issued by the company to raise finance using equity. These are issued to the investors (who are regarded as stockholders or shareholders, once common stock is issued to them) with no obligation to pay the dividend periodically. Common stock is also referred to as common shares.
To record:
Journal entry for the issue of stock with $22 as par value.
Answer to Problem 60E
Journal Entry for issuance common stock
| Date | Particulars | Debit ($) | Credit ($) |
| Not given |
Cash Dr. Common Stock Additional Paid-in Capital (common stock) |
1,358,700 | 711,700 647,000 |
Explanation of Solution
Given:
32,350 shares of common stock issued at $42 (par value $22).
When a company raises its finances by issuing common stock to stockholders, then the resulting amount is shown under Capital Stock section of Stockholders’ equity.
Journal Entry for issuance common stock
| Date | Particulars | Debit ($) | Credit ($) |
| Not given |
Cash Dr. Common Stock Additional Paid-in Capital (common stock) |
1,358,700 | 711,700 647,000 |
Cash =
Cash =
Cash = $1,358,700
Common Stock =
Common Stock =
Common Stock = $711,700
Additional Paid-in Capital (common stock) =
Additional Paid-in Capital (common stock) =
Additional Paid-in Capital (common stock) = $647,000.
Expert Solution
To determine
(b)
Introduction:
A common stock is issued by the company to raise finance using equity. These are issued to the investors (who are regarded as stockholders or shareholders, once common stock is issued to them) with no obligation to pay dividend periodically. Common stock is also referred to as common shares.
To record:
Journal entry for the issue of stock with $8 as stated value.
Answer to Problem 60E
Journal Entry for issuance common stock
| Date | Particulars | Debit ($) | Credit ($) |
| Not given |
Cash Dr. Common Stock Additional Paid-in Capital (common stock) |
1,358,700 | 258,800 1,099,900 |
Explanation of Solution
Given:
32,350 shares of common stock issued at $42 (stated value $8).
When a company raises its finances by issuing common stock to stockholders, then the resulting amount is shown under Capital Stock section of Stockholders’ equity.
Journal Entry for issuance common stock
| Date | Particulars | Debit ($) | Credit ($) |
| Not given |
Cash Dr. Common Stock Additional Paid-in Capital (common stock) |
1,358,700 | 258,800 1,099,900 |
Cash =
Cash =
Cash = $1,358,700
Common Stock =
Common Stock =
Common Stock = $258,800
Additional Paid-in Capital (common stock) =
Additional Paid-in Capital (common stock) =
Additional Paid-in Capital (common stock) = $1,099,900.
Expert Solution
To determine
(c)
Introduction:
A common stock is issued by the company to raise finance using equity. These are issued to the investors (who are regarded as stockholders or shareholders, once common stock is issued to them) with no obligation to pay dividend periodically. Common stock is also referred to as common shares.
The interest expense to be shown in Income Statement for year 2023.
Answer to Problem 60E
Journal Entry for issuance common stock
| Date | Particulars | Debit ($) | Credit ($) |
| Not given |
Cash Dr. Common Stock |
1,358,700 | 1,358,700 |
Explanation of Solution
Given:
32,350 shares of common stock issued (no par value or stated value).
When a company raises its finances by issuing common stock to stockholders, then the resulting amount is shown under Capital Stock section of Stockholders’ equity.
Journal Entry for issuance common stock
| Date | Particulars | Debit ($) | Credit ($) |
| Not given |
Cash Dr. Common Stock |
1,358,700 | 1,358,700 |
Cash =
Cash =
Cash = $1,358,700
Common Stock =
Common Stock =
Common Stock = $1,358,700.
Expert Solution
To determine
(d)
Introduction:
A common stock is issued by the company to raise finance using equity. These are issued to the investors (who are regarded as stockholders or shareholders, once common stock is issued to them) with no obligation to pay dividend periodically. Common stock is also referred to as common shares.
To explain:
The effect of par value on capital contributed and total stockholders’ equity.
Answer to Problem 60E
The total capital contributed and total shareholders’ equity remains unchanged if there is change in the par value of shares issued.
Explanation of Solution
The effect of Par value on:
- Contributed Capital: The contributed capital is divided into two accounts, i.e., Common Stock and Additional Paid-in (common stock). Par value is the minimum value for which a company can issue its common stock.
- Total Stockholders’ Equity: Total Shareholders’ equity includes various components. Some of the are:
- Common Stock
- Additional Paid-in (common stock)
- Preferred Stock
- Additional Paid-in (Preferred stock)
- Retained Earnings
Change in par value doesn’t affect the contributed capital as a whole. It affects the common stock account which is the amount that received for issuing stock at par value; the additional amount is recorded in the Additional Paid-in (common stock).
Hence, it can be concluded that larger the par value, smaller will be the additional paid-in capital.
Change in par value doesn’t affect total shareholders’ equity as a whole.
For instance, the issue price of a common stock is $25 (wherein $10 is par value and 20 shares have been issued).
This means,
Common Stock =
Additional Paid-in (common stock) =
Total Stockholders’ Equity = Common Stock + Additional Paid-in (common stock)
Total Stockholders’ Equity = $200 + $300
Total Stockholders’ Equity = $500
Now, the issue price increased to $20. This means,
Common Stock =
Additional Paid-in (common stock) =
Total Stockholders’ Equity = Common Stock + Additional Paid-in (common stock)
Total Stockholders’ Equity = $400 + $100
Total Stockholders’ Equity = $500
Hence, the total shareholders’ equity remains unchanged.
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Chapter 10 Solutions
Cornerstones of Financial Accounting
Ch. 10 - Prob. 1DQCh. 10 - 2. What does a share of stock represent?Ch. 10 - Prob. 3DQCh. 10 - Prob. 4DQCh. 10 - Prob. 5DQCh. 10 - Prob. 6DQCh. 10 - Prob. 7DQCh. 10 - Prob. 8DQCh. 10 - Prob. 9DQCh. 10 - Prob. 10DQ
Ch. 10 - 11. Describe how cumulative preferred stock...Ch. 10 - Prob. 12DQCh. 10 - 13. What balance sheet accounts are affected by...Ch. 10 - 14. What is the difference between par value and...Ch. 10 - Prob. 15DQCh. 10 - Prob. 16DQCh. 10 - Prob. 17DQCh. 10 - Prob. 18DQCh. 10 - Prob. 19DQCh. 10 - Prob. 20DQCh. 10 - Prob. 21DQCh. 10 - Prob. 22DQCh. 10 - Prob. 23DQCh. 10 - Prob. 24DQCh. 10 - Prob. 25DQCh. 10 - Prob. 26DQCh. 10 - Prob. 27DQCh. 10 - Prob. 28DQCh. 10 - Prob. 29DQCh. 10 - Prob. 30DQCh. 10 - Prob. 31DQCh. 10 - Prob. 32DQCh. 10 - Prob. 33DQCh. 10 - Prob. 34DQCh. 10 - Which of the following is not a component of...Ch. 10 - Which of the following statements is true? The...Ch. 10 - Authorized stock represents the: number of shares...Ch. 10 - Prob. 4MCQCh. 10 - Prob. 5MCQCh. 10 - Ames Corporation repurchases 10,000 shares of its...Ch. 10 - With regard to preferred stock, its stockholders...Ch. 10 - Prob. 8MCQCh. 10 - Prob. 9MCQCh. 10 - A company would repurchase its own stock for all...Ch. 10 - Prob. 11MCQCh. 10 - Prob. 12MCQCh. 10 - Prob. 13MCQCh. 10 - Prob. 14MCQCh. 10 - When a company declares a cash dividend, which of...Ch. 10 - Prob. 16MCQCh. 10 - Prob. 17MCQCh. 10 - The balance of the $2.50 par value Common Stock...Ch. 10 - When a company declares a 3-for-l stock split, the...Ch. 10 - Shea Company has 100,000 shares of 6%, S50 par...Ch. 10 - RVR Enterprises shows net income of $1 00,000 for...Ch. 10 - Comprehensive income: includes transactions that...Ch. 10 - Prob. 23MCQCh. 10 - Prob. 24MCQCh. 10 - Prob. 25CECh. 10 - Recording the Sale of Common Stock Plymouth...Ch. 10 - Calculating the Number of Shares Issued Castalia...Ch. 10 - Prob. 28CECh. 10 - Prob. 29CECh. 10 - Prob. 30CECh. 10 - Prob. 31CECh. 10 - Cash Dividends King Tut Corporation issued 19,000...Ch. 10 - Prob. 33CECh. 10 - Prob. 34CECh. 10 - Preferred and Common Stock Dividends Barstow...Ch. 10 - Preferred Stock Dividends Seashell Corporation has...Ch. 10 - Stockholder Profitability Ratios The following...Ch. 10 - Stockholder Payout Ratios The following...Ch. 10 - Prob. 39BECh. 10 - Recording the Sale of Common and Preferred Stock...Ch. 10 - Prob. 41BECh. 10 - Calculating the Number of Shares Issued Castanet...Ch. 10 - Prob. 43BECh. 10 - Accounting for Treasury Stock Paris Corporation...Ch. 10 - Treasury Stock Refer to the information for...Ch. 10 - Prob. 46BECh. 10 - Cash Dividends Cyprus Corporation issued 12,000...Ch. 10 - Prob. 48BECh. 10 - Augusta Corporation reported the following...Ch. 10 - Preferred and Common Stock Dividends Brookshed...Ch. 10 - Prob. 51BECh. 10 - Prob. 52BECh. 10 - Prob. 53BECh. 10 - Stockholder Payout Rations Super Duper Corporation...Ch. 10 - Prob. 55BECh. 10 - Prob. 56ECh. 10 - Outstanding Stock Lars Corporation shows the...Ch. 10 - Capital Stock Refer to the information for Stahl...Ch. 10 - Preparation of Stockholders Equity Section Refer...Ch. 10 - Issuing Common Stock Carmean Products Inc. sold...Ch. 10 - Issuing and Repurchasing Stock Mohawk Company had...Ch. 10 - Prepare the Stockholders' Equity Section Renee...Ch. 10 - Prepare the Stockholders' Equity Section Wildcat...Ch. 10 - Prob. 64ECh. 10 - Treasury Stock Transactions Garrett Inc. had no...Ch. 10 - Cash Dividends on Common Stock Berkwild Company is...Ch. 10 - Cash Dividends on Common and Preferred Stock Lemon...Ch. 10 - Prob. 68ECh. 10 -
Stock Dividends
Crystal Corporation has the...Ch. 10 - Stock Dividend The balance sheet of Cohen...Ch. 10 - Prob. 71ECh. 10 - Stock Dividends and Stock Splits The balance sheet...Ch. 10 - Preferred Dividends Eastern Inc.s equity includes...Ch. 10 - Cumulative Preferred Dividends Capital stock of...Ch. 10 - Retained Earnings Tigress Manufacturing had...Ch. 10 - Prob. 76ECh. 10 - Prob. 77ECh. 10 - Ratio Analysis Consider the following information....Ch. 10 - Ratio Analysis MJO Inc. has the following...Ch. 10 - Stockholders' Equity Terminology A list of terms...Ch. 10 - Prob. 81PSACh. 10 - Prob. 82PSACh. 10 - Treasury Stock Transactions Hansen Inc. engaged in...Ch. 10 - Statement of Stockholders' Equity At the end of...Ch. 10 - Common Dividends Fusion Payroll Service began 2019...Ch. 10 - Problem 10-86A Stock Dividends and Stock Splits...Ch. 10 - Prob. 87PSACh. 10 - Ratio Analysis Consider the following information...Ch. 10 - Prob. 81PSBCh. 10 - Prob. 82PSBCh. 10 - Treasury Stock Transactions Bentonite Adhesives...Ch. 10 - Statement of Stockholders' Equity At the end of...Ch. 10 - Common Dividends Thompson Payroll Service began in...Ch. 10 - Prob. 86PSBCh. 10 - Prob. 87PSBCh. 10 - Prob. 88PSBCh. 10 - Prob. 89.1CCh. 10 - Prob. 89.2CCh. 10 - Prob. 90.1CCh. 10 - Prob. 90.2CCh. 10 - Prob. 91CCh. 10 - Prob. 92.1CCh. 10 - Prob. 92.2CCh. 10 - Prob. 92.3CCh. 10 - Prob. 92.4CCh. 10 - Prob. 92.5CCh. 10 - Prob. 93.1CCh. 10 - Prob. 93.2CCh. 10 - Prob. 93.3CCh. 10 - Prob. 93.4CCh. 10 - Prob. 93.5CCh. 10 - Prob. 93.6CCh. 10 - Prob. 94.1CCh. 10 - Prob. 94.2CCh. 10 - Prob. 94.3CCh. 10 - Prob. 94.4CCh. 10 - Prob. 94.5CCh. 10 - Prob. 94.6CCh. 10 - Prob. 95.1CCh. 10 - Prob. 95.2C
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