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.

Prepare the appropriate journal entries.

Answer 1

Common Share

Dr. Cash $8,000,000

Cr. Common Stock $8,000,000

Preferred Share

Dr. Cash $50,000,000

Cr. Preferred Stock $50,000,000

Step-by-step explanation:

Shares issued are recorded as the common stock and preferred stock because both of these are issued at par in the first year of operation.

It is issued that the shares are actually issued and cash is received against both shares.

Cash debited because it is an asset account and asset account has debit balance.

Common stock and Preferred stock are the equity accounts so, these accounts are credited because equity have a credit nature.