Question

During its first year of operations, Eastern Data Links Corporation entered into the following transactions relating to shareholders’ equity. The articles of incorporation authorized the issue of 8 million common shares, $1 par per share, and 1 million preferred shares, $50 par per share.

Required:
Prepare the appropriate journal entries to record each transaction.
Feb. 12 Sold 2 million common shares, for $9 per share.
Feb 13 Issued 40,000 common shares to attorneys in exchange for legal services.
Feb 13 Sold 80,000 of its common shares and 4,000 preferred shares for a total of $ 945,000
Nov. 15 Issued 380,000 of its common shares in exchange for equipment for which the cash price was known to be $3,688,000.

Answer 1

Date Account Title Debit Credit

Feb 12 Cash $18,000,000

Common Stock $2,000,000

Paid in Capital in excess of Com- $16,000,000

mon stock par value

Working

Cash = 2 million shares * $9 = $18,000,000

Common stock = 2 million * $1 par value = $2,000,000

Date Account Title Debit Credit

Feb 13 Legal expenses $360,000

Common Stock $40,000

Paid in Capital in excess of Com- $320,000

mon stock par value

Working

Cash = 40,000 shares * 9 = $360,000

Common Stock = 40,000 * 1 = $40,000

Date Account Title Debit Credit

Feb 13 Cash $945,000

Common stock $80,000

Preferred Stock $200,000

Paid in Capital in excess of Com- $640,000

mon stock par value

Paid in Capital in excess of Pre- $25,000

ferred stock par value

Working:

Common stock = 80,000 shares * 1 = $8,000

Preferred stock = 4,000 shares * $50 = $200,000

Paid in Cap, Common = 80,000 * (9 - 1) = $640,000

Date Account Title Debit Credit

Nov. 15 Equipment $3,688,000

Common Stock $380,000

Paid in Capital in excess of Com- $3,308,000

mon stock par value

Working:

Common stock = 380,000 * $1 = $380,000