Question

Coastal Corporation issued 25,000 shares of $5 par value common stock at $17 per share and 6,000 shares of $50 par value, eight percent preferred stock at $78 per share. Later, the company purchased 3,000 shares of its own common stock at $20 per share.

Determine the financial statement effect of the share issuances and the purchase of its own common shares.

Answer 1

The issuance of common and preferred stock by Coastal Corporation increased both share capital and additional paid-in capital, the purchase of its own common stock reduced cash.

Step-by-step explanation:

Based on the information provided, the financial statement effects of the share issuances and the purchase of the company's own common shares are as follows:

Share Issuances:Common stock: The company issued 25,000 shares of $5 par value common stock at $17 per share. This will result in a credit to the Common Stock account of $125,000 [(25,000 shares * $5 par value) + (25,000 shares * $12 additional paid-in capital)].

Preferred stock: The company issued 6,000 shares of $50 par value, eight percent preferred stock at $78 per share. This will result in a credit to the Preferred Stock account of $468,000 [(6,000 shares * $50 par value) + (6,000 shares * $28 additional paid-in capital)].

Purchase of Own Common Shares:Common stock: The company purchased 3,000 shares of its own common stock at $20 per share. This will result in a debit to the Treasury Stock account of $60,000 (3,000 shares * $20 per share).

Overall, the share issuances increased the company's capital through the Common Stock and Preferred Stock accounts, while the purchase of its own common shares decreased the company's treasury stock.