Question

Ayayai Corporation is authorized to issue 46,000 shares of $5 par value common stock. During 2020, Ayayai took part in the following selected transactions. 1. Issued 5,000 shares of stock at $49 per share, less costs related to the issuance of the stock totaling $5,400. 2. Issued 1,200 shares of stock for land appraised at $46,000. The stock was actively traded on a national stock exchange at approximately $50 per share on the date of issuance. 3. Purchased 480 shares of treasury stock at $44 per share. The treasury shares purchased were issued in 2016 at $41 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

Question:

Ayayai Corporation is authorized to issue 46,000 shares of $5 par value common stock. During 2020, Ayayai took part in the following selected transactions.

1. Issued 5,000 shares of stock at $49 per share, less costs related to the issuance of the stock totaling $5,400.

2. Issued 1,200 shares of stock for land appraised at $46,000. The stock was actively traded on a national stock exchange at approximately $50 per share on the date of issuance.

3. Purchased 480 shares of treasury stock at $44 per share. The treasury shares purchased were issued in 2016 at $41 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:

a.

Cash = $239,600

Common Stock = $25,000

Paid in Capital = $214,000

b.

Land: = $60,000

Common Stock: = $6,000

Paid in Capital = $54,000

c.

Treasury Stock: $21,120

Cash: $21,500

Explanation:

a.

Cash

Cash is calculated as: 5,000 shares * $49 market price/share – $5,400 of issue costs]

Cash = $239,600

Common Stock

Common Stock is calculated as: 5,000 shares * $5 par value/share

Common Stock = $25,000

Paid-in Capital in Excess of Par - Common Stock

This is calculated by: Cash - Common Stock = $239,000 - $25,000

Paid in Capital = $214,000

b.

Land:

Land is calculated as 1,200 shares * $50 market price/share = $60,000

Common Stock:

Common Stock is calculated as: 1,200 shares * $5 par value/share = $6,000

Paid-in Capital in Excess of Par - Common Stock

This is calculated by: Land - Common Stock = $60,000 - $6,000

Paid in Capital = $54,000

c. Treasury Stock is calculated as:

480 stocks * $44 cost per share

= $21,120

Cash: $21,500