Cr. 67,500 (See note Below) Effect: Cash increased by $1,267,500 and preferred stock increased by 1200,000 and Paid-in Capital in Excess of Par – Preferred Stock increased by 1750000 Paid-in Capital in Excess of Par



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Sheldon optics produces medical lasers for use in hospitals. The accounts and their balances appear in the ledger of Sheldon Optics on October 31 of the current year as follows Preferred 2% stock, $80 par(50,000 shares authorized, 25000 shares issued $2,000, 000 Paid in capital in excess of par preferred stock 75, 000 common stock, $100 par (500,000 shares authorized, 50,000 shares issued) 5, 000,000 paid in capital in excess of par common stock 600,000 retained earnings 16,750,000 At the annual stockholders meeting on dec 7, the board of directors presented a plan for modernizing and expanding plant operations at a cost of 5,300,000.

The plan provided that on

Jan 10: borrowed $2,000,000 from whitefish National Bank, giving a 7% mortgage note

Jan 21: Issued 15,000 shares of preferred stock, receiving $84.50 per share in cash

Jan 31: Issued 17, 500 shares of common stock in exchange for land and a building, building valued at $1,850,000 and land valued at $162,500

Illustrate the effects on the accounts and financial statements of each of the preceding transactions.

Solution:

Jan 10


Journal Entry

Cash A/C …………………………………………………….…..Dr. $2,000,000

7% mortgage note Payable………………. Cr. $2,000,000

Effect: Cash and Liability would increase by $2,000,000

Jan 21

Cash A/C…………………………………………………………………..…………Dr 1267500



Preferred Stock (15,000 x $80)…………………………….….Cr. 1200,000

– Preferred Stock …….Cr.67,500 (See note Below)

Effect: Cash increased by $1,267,500 and preferred stock increased by 1200,000 and Paid-in Capital in Excess of Par – Preferred Stock increased by 1750000

Paid-in Capital in Excess of Par = 1267500-120000 = $67500

Paid-in Capital in Excess of Par 1267500-1200000=

Jan 31

Building A/c ……………………………………………………………………..……….Dr. $1,850,000



Land A/c…………………………………………………………………..………………..Dr. $162,500

Common Stock (17,500 x $100)………………………….……………Cr. 1,750,000



Paid-in Capital in Excess of Par - Common stock …………….Cr. 262,500

Note: Paid-in Capital in Excess of Par = 1850000+162500-1750000 = $262500

Effect: Land increased by $1,850,000, Land increased by 162,500 and Common stock increased by 1,750,000 and Paid-in Capital in Excess of Par – Common Stock increased by 262,500

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