Question

Blossom Corporation is authorized to issue 49,000 shares of $5 par value common stock. During 2017, Blossom took part in the following selected transactions:
1. Issued 4,500 shares of stock at $45 per share, less costs related to the issuance of the stock totaling $7,900.
2. Issued 1,100 shares of stock for land appraised at $49,000. The stock was actively traded on a national stock exchange at approximately $46 per share on the date of issuance.
3. Purchased 470 shares of treasury stock at $41 per share. The treasury shares purchased were issued in 2013 at $38 per share.

(a) Prepare the journal entry to record item 1.
(b) Prepare the journal entry to record item 2.
(c) Prepare the journal entry to record item 3 using the cost method.

Answer 1

Answer:

See explanation section

Explanation:

Requirement A

Debit      Cash                                         $194,600

Credit     Common stock - Par value                             $ 22,500

Credit     Common stock - Additional paid-in-capital   $172,100

Calculation:

Cash:  4,500 shares × $45 = $202,500

As the company's par value is $5,

Common stock - Par value: 4,500 shares × $5 = $22,500

As the market value of the stock is $45, the additional stock value = $45 - $5 = $40. Moreover, the company has issuance cost of $7,900

Additional common stock apart from par value minus the issuance cost = ($4,500 shares × $40) - $7,900 = $180,000 - $7,900 = $172,100.

The company issue common stock with a market value of $45 and issuance cost of $7,900 in exchange of cash.

Requirement B

Debit      Land                                         $50,600

Credit     Common stock - Par value                             $ 5,500

Credit     Common stock - Additional paid-in-capital   $45,100

Calculation:

Land:  1,100 shares × $46 = $50,600

As the company's par value is $5,

Common stock - Par value: 1,100 shares × $5 = $5,500

As the market value of the stock is $46, the additional stock value = $46 - $5 = $41.

Additional common stock apart from par value = ($1,100 shares × $41) = $45,100.

Although the land is appraised for $49,000, due to the increased market price stock, it is valued more.

The company issue common stock with a market value of $46 in exchange for land.

Requirement C

Debit    Treasury Stock          $19,270

Credit              Cash                $19,270

Purchasing share from the stock market is known as treasury stock.

Calculation: Treasury stock = 470 shares × $41 = $19,270

Debit     Cash                          $17,860

Credit    Common Stock - par value                             $2,350

Credit    Common stock - Additional paid-in-capital   $15,510

Calculation:

As the company's par value is $5,

Common stock - Par value: 470 shares × $5 = $2,350

Additional common stock apart from par value = $470 shares × ($38 - $5) = $15,510.

The company issue common stock with a market value of $38 after purchasing those treasury stock at $41 per share.