Explanation 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. 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. 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. Issue of common stock for non cash assets or services: Corporations often issue common stock for the services received from attorneys or consultants as compensation, or for the purchase of non cash assets such as land, buildings, or equipment. a. Record the journal entry for the issuance of common stock. Date Account Titles and Explanation Debit ($) Credit ($) Cash ( 100,000 shares × $1 ) 100,000 Common Stock 100,000 (To record the issuance of common stock at par) Table (1) Cash is an asset account. The amount is increased, because cash is received upon stock issued. Therefore, debit Cash account with the amount of cash received. Common Stock is a stockholders’ equity account and the amount is increased due to issuance of common stock. Therefore, credit Common Stock account with the value of Common stock. b. Record the issuance of par value common stock to meet the organization expense. Date Account Titles and Explanation Debit ($) Credit ($) Organization Expense ( 3,000 shares × $1 ) 3,000 Common Stock 3,000 (To record issuance of 3,000 shares of $1 par value per share to recognize the organization expense) Table (2) Organization expense is an expense which should be recognized, when the organizer of Corporation AP rendered promotional service. Organization expense has been increased by $3,000. Therefore, debit Organization expense account with the value of service received. Common Stock is a stockholders’ equity account and the amount is increased due to issuance of common stock

15th Edition

ISBN: 9781337885928

Author: WARREN

Publisher: CENGAGE L

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Chapter 13, Problem 6E

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Journalize the entries to record the transactions.

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Chapter 13 Solutions

FINANCIAL ACCOUNTING

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