Question

Stockholders' Equity: Transactions and Balance Sheet Presentation Torey Corporation was organized on April 1. with an authorization of 25,000 shares of six percent, $50 par value preferred stock and 200,000 shares of $5 par value common stock. During April, the following transactions affecting stockholders' equity occurred:
Apr. 1 Issued 80,000 shares of common stock at 540 cash per share:
3 Issued 2,000 shares of common stock to attorneys and promoters in exchange for their services in organizing the corporation. The services were valued at 3 531,000
8 Issued 3,000 shares of common stock in exchange for equipment with a fair market value of $55,000
20 Issued 6,000 shares of preferred stock for cash at $80 per share.
Required :
a. Prepare journal entries to record the above transactions.
b. Prepare the stockholders' equity section of the balance sheet at April 30.

Answer 1

Answer:

a. See the journal entries below.

b. Stockholders' equity = $3,766,000

Explanation:

Note: There are little errors in this question where dollar signs are used as figures. These are however corrected before answering the question. The complete question with the correction is therefore presented as follows:

Stockholders' Equity: Transactions and Balance Sheet Presentation Torey Corporation was organized on April 1. with an authorization of 25,000 shares of six percent, $50 par value preferred stock and 200,000 shares of $5 par value common stock. During April, the following transactions affecting stockholders' equity occurred:

Apr. 1 Issued 80,000 shares of common stock at $40 cash per share:

3 Issued 2,000 shares of common stock to attorneys and promoters in exchange for their services in organizing the corporation. The services were valued at $31,000

8 Issued 3,000 shares of common stock in exchange for equipment with a fair market value of $55,000

20 Issued 6,000 shares of preferred stock for cash at $80 per share.

Required :

a. Prepare journal entries to record the above transactions.

b. Prepare the stockholders' equity section of the balance sheet at April 30.

Explanation of the answers is now given as follows:

a. Prepare journal entries to record the above transactions.

Let APIC represents additional paid in capital, the journal entries can be prepared as follows:

Date      Particulars                                               Dr ($)                Cr ($)    

Apr. 1   Cash (80,000 * $40)                            3,200,000

              Common stock (80,000 * $5)                                      400,000

              APIC - Common stock                                               2,800,000

             (To record common stock issued in excess of par value.)            

Apr. 3   Attorney and promoters service exp.      31,000

               Common stock (2,000 * $5)                                          10,000

               APIC - Common stock                                                   21,000

            (To record common stock issued to attorneys and promoters for services at a premium.)

Apr. 8     Equipment (Fair value)                         55,000

                  Common stock (3,000 * 5)                                        15,000

                  APIC - Common stock                                              40,000

              (To record common stock issued for equipment at a premium.)

Apr. 20   Cash (6,000 * $80)                           480,000

                 Preferred stock (6,000 * $50)                                300,000

                 APIC - Preferred stock                                             180,000

              (To record preferred stock issued in excess of par value.)        

b. Prepare the stockholders' equity section of the balance sheet at April 30.

Using the figures from the journal entries above, this can be prepared as follows:

Torey Corporation

Stockholders' Equity Section of the Balance Sheet

At April 30.

Details                                                                                       Amount ($)  

Common stock ($400,000 + $10,000 + $15,000)                     425,000

Preferred stock                                                                            300,000

APIC - Common stock ($2,800,000 + $21,000 + $40,000)   2,861,000

Additional paid in capital - Preferred stock                                180,000  

Stockholders' equity                                                                3,766,000