Question

On May 15, Helena Carpet Inc., a carpet wholesaler, issued for cash 750,000 shares of no-par common stock (with a stated value of $1.50) at $4, and on June 30, it issued for cash 17,500 shares of preferred stock, $50 par at $60. a. Journalize the entries for May 15 and June 30, assuming that the common stock is to be credited with the stated value. If an amount box does not require an entry, leave it blank.

Answer 1

Answer: Please refer to Explanation

Step-by-step explanation:

First calculate the amount made from Issuing the common stock

Value of Common Stock = 17,500 shares * 1.50

= $1,125,000

Additional Paid In capital (excess that was paid for common stock)

= 4 (price sold at) - 1.5 ( stated price)

= $2.5

= 2.5 * 750,000

= $1,875,000

Tota cash received for Common Stock is therefore,

= $1,875,000 + $1,125,000

= $3,000,000

Then calculate amount made from Issuing Preferred stock

Preferred Stock = 17,500 * 50

= $875,000

Additional Paid In capital (excess that was paid for preferred stock)

=60 (price sold at) - 50 ( par value)

= $10

= 10 * 17,500

= $175,000

The Total cash realised from Issuing Preferred stock is therefore,

= 875,000 + 175,000

= $1,050,000

Transactions can then be Journalized as follows,

Date

May 15

DR Cash $3,000,000

CR Common Stock $1,125,000

CR Additional Paid In Capital in excess of stated value $1,875,000

( To record issuance of Common Stock)

Date

June 30

DR Cash $ 1,050,000

CR Preferred Stock $ 875,000

CR Additional Paid In Capital in excess of Par value $175,000

(To record issuance of Preferred Stock)