
a.
Prepare the journal entries to record the given transactions.
a.

Explanation of Solution
Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
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, and expenses.
Prepare the journal entries to record the given transactions as follows:
Date | Account Title and Explanation | Post Ref. | Debit | Credit |
July, 1 | Cash (1) | $527,000 | ||
Common stock (2) | $310,000 | |||
Paid-in capital in excess of par value (3) | $217,000 | |||
(To record issuance of 31,000, $10 par value common stock issued at $17 per stock) |
Table (1)
- Cash is an asset and it increases the value of assets by $527,000. Therefore debit cash account by $527,000.
- Common stock is a component of stockholders’ equity and it is increased. Therefore credit common stock account by $ 310,000.
- Paid-in capital in excess of par-common is a component of stockholders’ equity and it is increased. Therefore credit paid-in capital in excess of par-common account by $217,000.
Date | Account Title and Explanation | Post Ref. | Debit | Credit |
April, 8 | Equipment | $63,000 | ||
Common stock (4) | $35,000 | |||
Paid-in capital in excess of par value (5) | $28,000 | |||
(To record 3,500, $10 par value common stock issued at $18 per stock) |
Table (2)
- Equipment is an asset and it increases the value of assets by $63,000. Therefore debit equipment account by $63,000.
- Common stock is a component of stockholders’ equity and it is increased. Therefore credit common stock account by $ 35,000
- Paid-in capital in excess of par-common is a component of stockholders’ equity and it is increased. Therefore credit paid-in capital in excess of par-common account by $28,000
Date | Account Title and Explanation | Post Ref. | Debit | Credit |
April, 20 | Cash (7) | $220,000 | ||
Preferred stock | $220,000 | |||
(To record 6,000, $50 par value preferred stock issued at $55 per stock) |
Table (3)
- Cash is an asset and it increases the value of assets by $330,000. Therefore debit cash account by $330,000.
- Preferred stock is a component of stockholders’ equity and it is increased. Therefore credit preferred stock account by $ 330,000.
Working notes:
Calculate the cash received through issuance of shares (par common stock)
Calculate the value of common stock
Calculate the value of paid-in capital in excess of par-common
Calculate the value of common stock
Calculate the value of paid-in capital in excess of par-common
Calculate the cash received through issuance of shares (par preferred stock)
Calculate the value of preferred stock
b.
Prepare the stockholders’ equity section of the
b.

Explanation of Solution
Statement of stockholder’ equity:
This statement reports the beginning stockholders’ equity and all the changes, which led to ending stockholders’ equity. Additional capital, net income from income statement is added to and drawings are deducted from beginning stockholders’ equity to arrive at the result, ending stockholders’ equity.
Prepare the stockholders’ equity section of the balance sheet at April 30 as follows:
Company B Statement of Stockholders' Equity For Year Ended July 31 | ||||||
Particulars | Common stock | Capital in excess of par value | Capital from | Treasury stock | Total | |
Opening balance | XXX | |||||
31,000 common shares issued | $310,000 | $217,000 | $527,000 | |||
3,500 common shares issued | $35,000 | $28,000 | $63,000 | |||
5,000 | $220,000 | $220,000 | ||||
Net income | $38,000 | $38,000 | ||||
Cash dividend declared | $0 | |||||
Treasury stock repurchased | $0 | |||||
Closing balance | XXX | |||||
$565,000 | $245,000 | $0 | $38,000 | $0 | $848,000 |
Table (4)
Therefore, the ending balance of stockholder’s equity is $848,000.
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Chapter 11 Solutions
Financial Accounting for Undergraduates
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