Question

On September 1, 2017 Magna Highend Vehicles a New York based sole proprietorship needed funds to expand to New Jersey and Connecticut so the company incorporated in New York State. New York State, by its charter, authorized Magna Vehicles to issue 20,000 shares of $50 par value, preferred stock and 50,000 shares of no-par common stock. The Board of Directors assigned a $0.50 stated value to the common stock. Prepare journal entries to record the following transactions:

7 On October 3, 2017 an investor agreed to exchange a building assessed and valued by the City of New York at $800,000 for 15,000 of the preferred stock. The market price of the preferred stock is not known.

8 On Nov 8, the remaining 5000 preferred stock were sold cash at $70 per share.

9 On Dec. 3, 2017 the 50,000 common stock were sold for cash at a market price of $15 per share QC Delila Catering is authorized to issue 45,000 no-par shares on January 1, 2016. Prepare journal entries to record the following transactions

10 On March 1, 2016 Delila Catering issued 15,000 shares with a Market price of $18 per share

11 On April 15, 2016 Delila Catering issued 5,000 shares with a Market price of $10 per share in settlement of a legal fee of $6,500

12 On June 10, 2016 the company sold the remaining 25,000 shares for cash at a market price of $22 per share

Answer 1

a) Journal Entries for 2017: Magna Highend Vehicles

October 3, 2017:

Debit Building with $800,000

Credit Preferred Stock with $750,000

Credit Share Premium (Preferred Stock) with $50,000

Being issue of 15,000 preferred stock in exchange for building.

November 8, 2017:

Debit Cash with $350,000

Credit Preferred Stock with $250,000

Credit Share Premium (Preferred Stock) with $100,000

Being issue of 5,000 preferred stock in cash at $70 per share.

December 3, 2017:

Debit Cash with $750,000

Credit Common Stock with $25,000

Credit Share Premium with $725,000

Being issue of 50,000 common stock at $15 per share.

b) 2016 Journal Entries for QC Delila Catering:

March 1, 2016:

Debit Cash with $270,000

Credit Stock with $270,000

Being issue of 15,000 shares at $18 per share.

April 15, 2016:

Debit Legal Fee with $6,500

Debit Stock Discount with $43,500

Credit Stock with $50,000

Being issue of 5,000 shares worth $10 per share in settlement of a legal fee.

June 10, 2016:

Debit Cash with $550,000

Credit Stock with $550,000

Being issue of 25,000 shares at $22 per share.

Step-by-step explanation:

Shares at be issued in exchange for cash or other assets, and even in settlement of a liability.

Some shares are issued at a discount while some are issued at a premium or at par. A share issued at a discount means that the stock was sold for less than its market value or par value. For example, the issue of stock worth $50,000 in settlement of a legal fee of $6,500.

Shares issued at a premium are sold for more than their par values. The par value of a stock is the stated nominal value as against the market price. Usually, if a stock is doing well in the market, the market price is more than the par value.