Final answer:
Kumar Management Inc. performed two transactions: issuing shares for cash and for land. The first transaction is straightforward with cash debited and preferred stock credited. The second transaction involves issuing shares for land, where the land is debited, preferred stock is credited, and any difference is recognized as additional paid-in capital.
Step-by-step explanation:
On March 8, Kumar Management Inc. issued 6,000 preferred shares for cash at $31 per share. The journal entry for this transaction would be:
- Debit Cash $186,000 (6,000 shares x $31 per share)
- Credit Preferred Stock $186,000
On April 20, the company issued an additional 3,600 preferred shares in exchange for land. Considering the shares were trading at $35, the fair value of the land received is $131,700, the journal entry would be:
- Debit Land $131,700
- Credit Preferred Stock $126,000 (3,600 shares x $35 per share)
- Credit Additional Paid-In Capital (or Premium on Preferred Stock) $5,700
The difference between the fair value of the land and the amount credited to Preferred Stock represents the additional paid-in capital or premium on the preferred stock.