Question

On February 12, Quality Carpet Inc., a carpet wholesaler, issued for cash 1,000,000 shares of no-par common stock (with a stated value of $0.25) at $1.20, and on August 3, it issued for cash 10,000 shares of preferred stock, $15 par at $21.Required:A. Journalize the entries for February 12 and August 3, assuming that the common stock is to be credited with the stated value. Refer to the Chart of Accounts for exact wording of account titles.B. What is the total amount invested (total paid-in capital) by all stockholders as of August 3?

Answer 1

Answer:

B. The invested amount is $1,410,000

Explanation:

A. The journal entry is shown below:

For February 12:

Cash A/c Dr (1,000,000 shares × $1.20) = $1,200,000

   To Common stock  (1,000,000 shares × $0.25) = $250,000

    To Paid in capital in excess of par                         $950,000

(Being common stock is issued for cash)

For August 3:

Cash A/c Dr (10,000 shares × $21) = $210,000

   To Preference stock  (10,000 shares × $15) = $150,000

    To Paid in capital in excess of par                   $60,000

(Being preference stock is issued for cash)

B. The computation of the total amount invested is shown below:

Common stock = $250,000

Add: Preferred stock = $150,000

Add: Additional paid up capital of common stock = $950,000

Add: Additional paid up capital of Preference stock =  $60,000

So, the invested amount is $1,410,000