
Prepare the

Explanation of Solution
Common stock:
These are the ordinary shares that a corporation issues to the investors in order to raise funds. In return, the investors receive a share of profit from the profits earned by the corporation in the form of dividend.
Par value:
It refers to the value of a stock that is stated by the corporation’s charter. It is also known as face value of a stock.
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.
Journal entries for given transaction are as follows:
a. Issued 66,000 common shares at $9 per share:
Date | Accounts title and explanation | Ref. | Debit ($) | Credit ($) |
Cash (+A) (2) | 594,000 | |||
Common stock (+SE) (1) | 330,000 | |||
Additional paid-in capital, common stock (+SE) (3) | 264,000 | |||
(To record the issuance of common stock) |
Table (1)
- Cash is an assets account and it increased the value of asset by $594,000. Hence, debit the cash account for $594,000.
- Common stock is a component of
stockholder’s equity and it increased the value of stockholder’s equity by $330,000. Hence, credit the common stock for $330,000. - Additional paid-in capital is a component of stockholder’s equity and it increased the value of stockholder’s equity by $264,000. Hence, credit the additional paid-in capital for $264,000.
Working note:
Calculate the value of common stock
Calculate the total cash received
Calculate the value of additional paid in capital
b. Issued 9,000 shares of
Date | Accounts title and explanation | Ref. | Debit ($) | Credit ($) |
Cash (+A) (5) | 180,000 | |||
Preferred stock (+SE) (4) | 90,000 | |||
Additional paid-in capital, preferred stock (+SE) (6) | 90,000 | |||
(To record the issuance of preferred stock) |
Table (2)
- Cash is an assets account and it increased the value of asset by $180,000. Hence, debit the cash account for $180,000.
- Preferred stock is a component of stockholder’s equity and it increased the value of stockholder’s equity by $90,000. Hence, credit the preferred stock for $90,000.
- Additional paid-in capital, preferred stock is a component of stockholder’s equity and it increased the value of stockholder’s equity by $90,000. Hence, credit the additional paid-in capital, preferred stock account for $90,000.
Working note:
Calculate the value of preferred stock
Calculate the total cash received
Calculate the value of additional paid in capital, preferred stock
c. Issued 2,500 common shares at $10 per share and issued 1,000 shares of preferred stock at $20 each:
Date | Accounts title and explanation | Ref. | Debit ($) | Credit ($) |
Cash (+A) (13) | 45,000 | |||
Preferred stock (+SE) (7) | 10,000 | |||
Common stock (+SE) (10) | 12,500 | |||
Additional paid-in capital, preferred stock (+SE) (9) | 10,000 | |||
Additional paid up capital, common stock(+SE) (12) | 12,500 | |||
(To record issuance of common stock and preferred stock) |
Table (3)
- Cash is an assets account and it increased the value of asset by $45,000. Hence, debit the cash account for $45,000.
- Preferred stock is a component of stockholder’s equity and it increased the value of stockholder’s equity by $10,000. Hence, credit the preferred stock for $10,000.
- Common stock is a component of stockholder’s equity and it increased the value of stockholder’s equity by $12,500, Hence, credit the common stock for $12,500.
- Additional paid-in capital, preferred stock is a component of stockholder’s equity and it increased the value of stockholder’s equity by $10,000. Hence, credit the additional paid-in capital, preferred stock account for $10,000.
- Additional paid up capital, common stock is a component of stockholder’s equity and it increased the value of stockholder’s equity by $12,500. Hence, credit the additional paid up capital, common stock account for $12,500.
Working note:
Calculate the value of preferred stock
Calculate the cash received from preferred stock
Calculate the value of additional paid in capital, preferred stock
Calculate the value of common stock
Calculate the cash received from common stock
Calculate the value of additional paid in capital
Calculate the value of total cash received from preferred stock and common stock
Want to see more full solutions like this?
Chapter 11 Solutions
FINANCIAL ACCOUNTING
- The financial statements of Garner Manufacturing report net sales of $600,000 and accounts receivable of $120,000 and $80,000 at the beginning and end of the year, respectively. What is the average collection period for accounts receivable in days?arrow_forwardWhat is the book value of machineryarrow_forwardAccounting questionsarrow_forward
- Darwin Enterprises purchased machinery on January 1, 2021, at a cost of $75,000. The machinery has an estimated useful life of 6 years and an estimated residual value of $9,000. Darwin’s year-end is December 31st. If Darwin uses the straight-line method to depreciate the asset, what is the book value of the machinery on December 31, 2022? (A). $60,000 (B). $53,000 (C). $66,000 (D). $57,000arrow_forwardA machine that originally cost $30,000 and was depreciated on a straight-line basis has one year of its expected 6-year life remaining. Its current market value is $10,000. What is the corporate tax rate is 30%. What is the cash flow from disposing of the old machine? Correct answerarrow_forwardI need help with this solution and accounting questionarrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





