Question

Blue Spruce Corporation is authorized to issue both preferred and common stock. The par value of the preferred is $50. During the first year of operations, the company had the following events and transactions pertaining to its preferred stock.

Feb. 1 Issued 21,500 shares for cash at $57 per share.
July 1 Issued 11,500 shares for cash at $61 per share.

Journalize the transactions.

Answer 1

Blue Spruce Corporation's journal entries for preferred stock issuance reflect cash inflow and credits to Preferred Stock and Paid-In Capital in Excess of Par Value accounts. They issued 21,500 shares at $57 and 11,500 shares at $61, resulting in premiums over the par value.

Step-by-step explanation:

The Blue Spruce Corporation's transactions related to the preferred stock issuance can be recorded in journal entries reflecting the issuance of shares and the cash received. On February 1st, they issued 21,500 shares for cash at $57 per share. Since the par value is $50 and the issuance price is $57, there is a premium of $7 per share. The journal entry for this transaction would be a debit to Cash for the total amount received (21,500 shares × $57 per share) and credits to Preferred Stock at par value (21,500 shares × $50 per share) and Paid-In Capital in Excess of Par Value, Preferred Stock for the premium (21,500 shares × $7 per share).

Similarly, on July 1st, they issued 11,500 shares for cash at $61 per share. The journal entry would involve debiting Cash for the total amount received (11,500 shares × $61 per share) and crediting Preferred Stock at par value (11,500 shares × $50 per share) and Paid-In Capital in Excess of Par Value, Preferred Stock for the premium (11,500 shares × $11 per share). These transactions highlight the aspects of finance where a corporation issues shares to investors expecting a rate of return, which can be through dividends or capital gains.