Question:
Ayayai Corporation is authorized to issue 46,000 shares of $5 par value common stock. During 2020, Ayayai took part in the following selected transactions.
1. Issued 5,000 shares of stock at $49 per share, less costs related to the issuance of the stock totaling $5,400.
2. Issued 1,200 shares of stock for land appraised at $46,000. The stock was actively traded on a national stock exchange at approximately $50 per share on the date of issuance.
3. Purchased 480 shares of treasury stock at $44 per share. The treasury shares purchased were issued in 2016 at $41 per share.
(a) Prepare the journal entry to record item 1.
(b) Prepare the journal entry to record item 2.
(c) Prepare the journal entry to record item 3 using the cost method.
Answer:
a.
Cash = $239,600
Common Stock = $25,000
Paid in Capital = $214,000
b.
Land: = $60,000
Common Stock: = $6,000
Paid in Capital = $54,000
c.
Treasury Stock: $21,120
Cash: $21,500
Explanation:
a.
Cash
Cash is calculated as: 5,000 shares * $49 market price/share – $5,400 of issue costs]
Cash = $239,600
Common Stock
Common Stock is calculated as: 5,000 shares * $5 par value/share
Common Stock = $25,000
Paid-in Capital in Excess of Par - Common Stock
This is calculated by: Cash - Common Stock = $239,000 - $25,000
Paid in Capital = $214,000
b.
Land:
Land is calculated as 1,200 shares * $50 market price/share = $60,000
Common Stock:
Common Stock is calculated as: 1,200 shares * $5 par value/share = $6,000
Paid-in Capital in Excess of Par - Common Stock
This is calculated by: Land - Common Stock = $60,000 - $6,000
Paid in Capital = $54,000
c. Treasury Stock is calculated as:
480 stocks * $44 cost per share
= $21,120
Cash: $21,500