Question

Lindsey Hunter Corporation is authorized to issue 50,000 shares of $5 par value common stock. During 2020, Lindsey Hunter took part in the following selected transactions.

1. Issued 5,000 shares of stock at $45 per share, less costs related to the issuance of the stock totaling $7,000.
2. Issued 1,000 shares of stock for land appraised at $50,000. The stock was actively traded on a national stock exchange at approximately $46 per share on the date of issuance.
3. Purchased 500 shares of treasury stock at $43 per share. The treasury shares purchased were issued in 2016 at $40 per share. .

Instructions

(a) Prepare the journal entry to record item 1.
(b) Prepare the journal entry to record item 2.

Answer 1

In item 1, the journal entry to record the issuance of 5,000 shares of stock at $45 per share would include a debit to Cash and a credit to both Common Stock and Additional Paid-in Capital. In item 2, the journal entry to record the issuance of 1,000 shares of stock for land appraised at $50,000 would include a debit to Land and a credit to both Common Stock and Additional Paid-in Capital.

Step-by-step explanation:

(a) Prepare the journal entry to record item 1:

Issued 5,000 shares of stock at $45 per share, less costs related to the issuance of the stock totaling $7,000.

DR Cash $220,000 ($45 x 5,000)

CR Common Stock $25,000 ($5 x 5,000)

CR Additional Paid-in Capital $198,000 ([$45 - $5] x 5,000 - $7,000)

(b) Prepare the journal entry to record item 2:

Issued 1,000 shares of stock for land appraised at $50,000.

DR Land $50,000

CR Common Stock $5,000

CR Additional Paid-in Capital $45,000

Answer 2

(a).

Dr Cash 218,000

Cr Common Stock 25,000

Cr Paid-in capital - Common stock 193,000

( to record the issuance of 5,000 share at $45 with cost of $7,000)

(b)

Dr Land appraised expenses 46,000

Cr Common stock 5,000

Cr Paid-in capital - Common stock 41,000

( to record the issuance of shares in exchange for land appraisal services at market value of shares issuance)

Step-by-step explanation:

(a)

Cash receipt is 5,000 x 45 - 7,000 = $218,000; Common stock increase by Par value x stock issuance = 5 x 5,000 = $25,000; Paid-in capital increase by (45-5) x 5,000 - 7,000 = $193,000.

(b)

Common stock increase by par value x stock issuance = 1,000 x 5 = $5,000; Appraisal Expenses is increased at the market value of the shares issuance = 1,000 x 46 = $46,000; Paid-in capital account increase by the amount calculated as ( Share price - Par value) x share issuance = (46-5) x 1,000 = $41,000.