Question

Pomona Corporation issued 60,000 shares of $3 par value common stock at $21 per share and 9,000 shares of $30 par value, ten percent preferred stock at $85 per share. Later, the company purchased 2,000 shares of its own common stock at $23 per share.a. Prepare the journal entries to record the share issuances and the purchase of the common shares b. Assume that Inland sold 1,500 shares of the treasury stock at $28 per share. Prepare the general journal entry to record the sale of this treasury stock. c. Assume that Inland sold the remaining 500 shares of treasury stock at $20 per share. Prepare the journal entry to record the sale of this treasury stock

Answer 1

Answer:

a.

Dr Cash                            2,025,000

Cr Common stock           180,000

Cr Preferred stock           270,000

Cr Additional paid-in capital - common stock   1,080,000

Cr Additional paid-in capital - preferred stock  495,000

( to record the issuance of common stock and preferred stock)

Dr Treasury stock             46,000

Cr Cash                             46,000

(to record repurchased of 2,000 common shares at $23 per share)

b.

Dr Cash          42,000

Cr Treasury stock  34,500

Cr Additional paid-in capital ( Treasury stock) 7,500

( to record 1,500 common stock sold at $28 per share)

c.

Dr Cash       10,000

Dr Additional paid-in capital ( Treasury stock) 1,500

Cr Treasury stock 11,500

( to record 500 common stock sold at $20 per share)

Explanation:

a.

*Issuance:

Cash receipt = Common stock unit price x number of common stock issued + Preferred stock unit price x number of preferred stock issued = 2,025,000

Common stock account and preferred stock account will be recorded as par value x number of stock issued. Thus: Common stock account = 60,000 x 3 = 180,000; Preferred sock account = 9,000 x 30 = $270,000

Additional paid-in capital common stock account balance and Additional paid-in capital preferred stock account balance each is equal to the difference between unit sell price and par value times number of stock issued. Thus: Common stock account = 60,000 x 18 = 1,080,000; Preferred sock account = 9,000 x 55 = $495,000.

* Repurchased:

Cash spent on repurchased = no of repurchased x repurchased unit price = 2,000 x 23 = $46,000

b.

Cash receipt ( Debit) = no of common stock sold x unit selling price = 1,500 x 28 = $42,000

Treasury stock will be credited at the amount equal : repurchased price x no of common stock sold = 23 x 1,500 = $34,500

The difference will be credited into Additional paid-in capital ( Treasury stock) $7,500

c.

Cash receipt ( Debit) = no of common stock sold x unit selling price = 500 x 20 = $10,000

Treasury stock will be credited at the amount equal : repurchased price x no of common stock sold = 23 x 500 = $11,500

The difference will be debited into Additional paid-in capital ( Treasury stock) $1,500.