Sheets (1) ‫جامعة االزهر‬

Corporations :
Chapter
Organization and
Capital Stock
Transactions
14

Edited by Dr/ Magdy Kamel

Tel/ 01273949660
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The corporation form of organization:
 The legal interpretation of a corporation is an entity separate and distinct from its
owners
 A corporation may be organized for the purpose of making profit or it may be
nonprofit seeking

Classification by ownership distinguishes between publicly held and privately held

corporations
A publicly held corporation may have A privately held corporations often referred
thouthands of stockholders, and its stock is to as a closely retated held corporation,
regularly traded on a national securities usually has only a few stockholders and
exchanges. doesn’t offer its stock for sale to the
general public.

Characteristics of a Corporation :
1- Separate Legal Existence ‫كيان قانونى منفصل‬
 As an entity separate and distinct from its owners, the corporation acts under its own
name rather than in the name of its stockholders .
 It may borrow money , and may enter into legal contracts in its own name, and it may
sue or be sued, also it pays its own taxes.
 The acts of its owners (stockholders) don’t bind the corporation unless such owners
are duly appointed agents of the corporation.

2) limited liability of stockholders: ‫التزام محدود لحاملى االسهم‬

 Since a corporation is a separate legal entity , creditors have resources only to
compare assets to satisfy their claims.
 The liability of stockholders is normally limited to their investment in the corporation.
 Creditors have no legal claim on the personal assets of the owners unless fraud has
occurred.
 stockholders’ loss are generally limited to their capital investment in the corporation.

3) transferable ownership rights ‫حقوق ملكية متنقلة من شخص الخر‬

 Ownership of a corporation is held in shares of capital stock, these are transferable
units.
 Stockholders may dispose of part or all of their interest in a corporation simply by
selling their stock.

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4) ability to acquire capital ‫سهوله تجميع راس المال‬
 It is relatively easy for a corporation to obtain capital through the issuance of stock.
 Stockholder has limited liability and shares of stock are readily transferable
 The numerous individuals can become stockholders by investing small amounts of
money.

5) continuous life ‫عمر الشركة مستمر‬

 The life of a corporation is stated in its charter.
 The life may be perpetual or it may be limited to a specific number of years.
 The life can be extended through renewal of the charter.
‫ قد تكون الشركه دائمه او عمرها محدود‬, ‫عمر الشركه معلن عنه فى قرار تاسيس الشركه‬

6) corporation management ‫اداره الشركة‬

Stockholders legally own the corporation. But they manage the corporation indirectly
through a board of directors they elect.
‫يمتلك اصحاب االسهم قانونا الشركه ولكنهم يديرون الشركه بصوره غير مباشره من خالل مجلس اداره ينتحبونه‬
The board, in turn, formulates the operating policities for the company.
board also selects officiers to execute policy and perform daily management functions.
‫يقوم مجلس االداره باختيار الموظفين وتنفيز الوظائف االداره اليوميه‬

7) government regulations ‫القيود والتنظيمات الحكومية‬

 A corporation is subject to numerous state and federal regulations
 Governmental regulations are designed to protect the owners of the corporation. Such
protection is needed because most stockholders don’t participate in the day to day
management of the company.

8) additional taxes ‫الضرائب المضاعفة‬

 Corporation must pay federal and state income taxes as a separate legal entity
 These taxes are substantial : they can amount to more than 40% of taxable income .
 In addition, stockholders are required to pay taxes on cash dividends. Thus, many
argue that corporate income is taxes twice (double taxation)
‫ يطلب من‬,‫ باالضافه الى ذلك‬%40 ‫الشركه بتدفع ضرائب وهزه الضرائب كبيره من الممكن ان تصل الى اكتر من‬
‫ النه بيتم دفع ضريبه‬: ‫حاملى االسهم ان يدفعوا ضرائب على االرباح النقديه ( كده سميت بالضرائب المضاعفه‬
‫على ارباح الشركه باالضافه الى ضريبه لحاملى االسهم‬

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Forming a Corporation
The initial step in forming a corporation
1) file an application with the Secretary of State in the state in which incorporation is
desired.
(2) it grants a charter
3) corporation develop by laws
The issuance of the charter creates the corporation
Corporations engaged in interstate commerce must also obtain a license from each state
in which they do business

Costs incurred in the formation of a corporation are called organization costs.

These costs include legal and state fees, and promotional expenditures involved in the
organization of the business.
Corporations expense organization costs as incurred

Ownership rights of stockholders ‫حقوق الملكيه لحاملى االسهم‬

Stockholders have the right to:
1) Vote in election of board of directors at annual meeting and vote on actions that
require stockholder approval.
2) Share the corporate earnings through receipt of dividends.
3) Keep the same percentage ownership when new shares of stock are issued
(preemptive right) ‫حق الشفعه‬
4) Share in assets upon liquidation in proportion to their holdings. This is called a residual
claim:
owners are paid with assets that remain after all creditors’ claims have been paid.

Stock issue Considerations

 Authorized Stock
The charter indicates the amount of stock that a corporation is authorized to sell
‫ تم تحديد كميه االسهم التى الشركه صرحت ببيعها‬: ‫ بمعنى وفقا لقرار تاسيس الشركه‬:‫اسهم جاهزه للبيع‬

 Issuance Of Stock ‫اسهم تم بيعها‬

A corporation can issue common stock directly to investors. /Or it can issue the stock
indirectly through an investment banking firm that specializes in bringing securities to
market.
‫يمكن للشركه ان تبيع االسهم; مباشرا للمستثمرين او بطريقه غير مباشره عن طريق شركه مصرفيه استثماريه‬
 Market value per stocks
The stock of publicly held companies is traded on organized exchanges.
The dollars price per share are established by the interaction between buyers and
sellers.
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Par and no par value stocks
 Par value stock is capital stock to which the charter has assigned a value per share
most states required the corporation to sell its shares at par
 No-par value stock is capital stock to which the charter has not assigned a value
In many states the board of directors assigns a stated value to no-par shares

Corporate capital
Owners’ equity is identified by various names:
stockholders’ equity, shareholders’ equity, or corporate capital.
The stockholders’ equity section of a corporation’s balance sheet consists of two parts:
(1) paid-in (contributed) capital and (2) retained earnings (earned capital).

1) Paid-In Capital
Paid-in capital is the total amount of cash and other assets paid in to the corporation
by stockholders in exchange for capital stock. As noted earlier, when a corporation
has only one class of stock, it is common stock.
2) Retained Earnings
Retained earnings is net income that a corporation retains for future use. Net income
is recorded in Retained Earnings by a closing entry that debits Income
Summary and credits Retained Earnings.

First: accounting for common stock issues

1) The primary objectives in accounting for the issuance of common stock are :
a) to identify the specific sources of paid in capital
b) to maintain the distinction between paid in capital and retained earnings

2) when the issuance of common stock for cash is recorded, the par value of the shares is
credited to common stock, The portion of the proceeds that is above or below par
value is recorded in a separate paid in capital account.

3) when no par common stock has a stated value, the entires are similar to those for par
value common stock.

4) when no par common stock doesn’t have a stated value, the entire proceeds from the
issue become legal capital and credited to common stock.

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Example (1)

Boomer corporation issues 2,000 shares of common stock at $ 10 per share.

Stock has $ 4 par value Stock has no par value

 Cash 20,000  Cash 20,000
 Common stock (4 × 2,000) 8,000  Common stock 20,000
 Paid in capital in excess of (2,000 × 10)
par value (6 × 2,000) 12,000
Stock has $ 4 stated value Stock has no stated value
 Cash 20,000  Cash 20,000
 Common stock (4 × 2,000) 8,000  Common stock 20,000
 Paid in capital in excess of (2,000 × 10)
stated value (6 × 2,000) 12,000

Issuing common stock for services or noncash assets

Stock may also be issued for services (compensation to attorneys or consultants ) or for
noncash assets (land, buildings, and equipment), the cost is either the fair market value
of the consideration given up, or the fair market value of the consideration received
which is more clearly determinable.

Example
Assume that attorneys have helped jorden company incorporate. They have billed the
company $ 5,000 for their services. They agree to accept 4,000 shares of $1 par value
common stock in payment of their bill, the market value of the consideration received
$5,000 is more clearly evident.

Solution

Organization expense 5,000

Common stock 4,000
Paid in capital in excess of par value 1,000

Example
Ayman corporation Issued 5,000 shares for $5 par value of its stock for land advertised for
sale at $80,000. Starr's stock is actively traded at a market price of $15 per share.
Solution
Land (5,000 × $15) 75,000
Common stock 25,000
Paid in capital in excess of par value 50,000

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Second : treasury stock
1) treasury stock is a corporation’s own stock that has been issued fully paid for , &
reacquired by the corporation but not retired.
‫هى اسهم; تمتلكها الشركه ومصدره فعال وثمنها ادفع بالكامل والشركة هتعيد امتالكها مره اخرى‬
2) treasury stock is generally accounted for by the cost method , under this method ,
treasury stock is debited for the price paid to require the shares & the same amount is
credited to treasury stock when the share are disposal of.

3) when the selling price of treasury stock is greater than its cost, the difference is
credited to paid in capital from treasury stock , when treasury stock is sold below its
cost, paid in capital from treasury stock is debited for its remaining balances and retained
earnings is debited for any additional excess of cost over selling price.

Example :
On January 1, 2010, the stockholders' equity section of Nunez Corporation shows:
Common stock ($5 par value) $1,500,000
paid-in capital in excess of par value $1,000,000
and retained earnings  $1,200,000
During the year, the following treasury stock transactions occurred. 
a) Mar. 1 Purchased 50,000 shares for cash at $15 per share. 
July. 1 Sold 10,000 treasury shares for cash at $17 per share. 
Sept. 1 Sold 8,000 treasury shares for cash at $14 per share. 

b) Restate the entry for September 1, assuming the treasury shares were sold at $12 per
share. 
Solution
a) Journal entries
Mar.1 Treasury stock (50,000 x $15)  750,000
Cash 750,000
July 1 Cash 170,000
Treasury stock (10,000 × $15)  150,000
Paid-in cap. from treasury stock 20,000
Sept. 1 Cash (8,000 x $14)  112,000
Paid-in cap. from treasury stock 8,000
Treasury stock (8,000 × $15) 120,000

b)
Sept. 1 Cash (8,000 x $12)  96,000
Paid-in cap. from treasury stock 20,000
Retained earnings 4,000 120,000
Treasury stock (8,000 × $15)

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Third : accounting for preferred stock
1) a corporation may issue an additional class of stock (called preferred stock ) to appeal

to more potential investors.

2) preferred stock has contractual provision that give it priority over common stock in
certain areas.
Typically, preferred stock has a priority as to
a) distribution of earnings (dividends)
b) assets in the event of liquidation

3) preferred stock dividends preferences may be classified as:

 Cumulative – both current year dividends and any unpaid prior year dividends must
be paid to preferred stockholders before common stockholders received any
dividends.
 Preferred dividends not declared in a given period are called dividends in arrears.
 Dividends in arrears are not considered a liability but they should be disclosed in
the notes to financial statements.

4) preferred dividends may be convertible and callable. Convertible preferred stock

provides for exchange of preferred into common stock at specific ratio at the
stockholders’ option. Callable preferred stock grants the issuing corporation the right to
purchase the stock from stockholders at specific future dates and prices.

Statement presentation and analysis :

Within paid in capital, two classifications are recognized:
1) capital stock .
This category consists of preferred and common stock. Preferred stock is shown
before common stock because of its preferential rights.
Par value, shares authorized, shares issued, and shares outstanding are reported
for each class of stock.

2) additional paid in capital

This includes the excess of amounts paid in over par or stated value and paid in
capital from treasury stock.

Book value per share ‫القيمه الدفتريه لسعر السهم‬

1) it represents the equity a common stockholder has in the net assets of a corporation
from owning one share of stock.

Book value per share =

Notes  Book value per share may not equal market value per share

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Exercise (14 – 1)
During its first year of operations. Klump Corporation had the following
transactions pertaining to its common stock.
Jan. 10. Issued 70,000 shares for cash at $5 per share.
July 1. Issued 40,000 shares for cash at $8 per share.
Instructions:
(a) Journalize the transitions, assuming that the common stock has a par value of
$5 per share.
(b) Journalize the transactions, assuming that the common stock is no-par with a
stated value of $1 per share.
a)
Jan. 10 Cash ( 70,000 × $5 ) 350,000
Common Stock 350,000

July. 1 Cash ( 40,000 × $8 ) 320,000

Common Stock ( 40,000 × $5 par) 200,000
Paid in capital in excess of par value 120,000
( 40,000 × $3)

b)
Jan. 10 Cash ( 70,000 × $5 ) 350,000
Common Stock ( 70,000 × $1) 70,000
Paid in capital in excess of 280,000
stated value ( 70,000 × $4)
July. 1 Cash (40,000 × $8) 320,000
Common Stock (40,000 × $1) 40,000
Paid in capital in excess of 280,000
Stated value (40,000 × $7)
Exercise ( 14 – 2 )
Garza Co. had the following transactions during the current period.
Man. 2. Issued 5,000 shares of $1 par value common stock to attorneys in
payment of a bill for $30,000 for services provided in helping the
company to incorporate.
June 12. Issued 60,000 shares of $1 par value common stock for cash of $375,000.
July 11. Issued 1,000 shares of $100 par value preferred stock for cash at $110
per share.
Nov. 28. Purchased 2,000 shares of treasury stock for $80,000.
Instructions:
Journalize the transaction.
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 Mar. 2 Organization Expense 30,000
Common Stock ( 5,000 × $1par) 5,000
Paid in capital in excess of 25,000
par value – common stock
June. 12 Cash 375,000
Common Stock ( 60,000 × $1 par) 60,000
Paid in capital in excess of 315,000
par value – common stock
July. 11 Cash (1,000 × $110 ) 110,000
Preferred Stock (1,000 × $100 par) 100,000
Paid in capital in excess of par 10,000
value – preferred stock (1,000×$10)
Nov. 28 Treasury Stock 80,000
Cash 80,000

Exercise ( 14 – 3 )
As an auditor for the CPA firm of Alger and Carl, you encounter the following
situations in auditing different clients.
1. Desi Corporation is a closely held corporation whose stock in not publicly
traded. On December 5, the corporation acquired land by issuing 5,000 shares of
its $20 par value common stock. The owners' asking price for the land was
$120,000, and the fair market value of the land was $110,000.

2. Lucille Corporation is a publicly held corporation whose common stock is

traded on the securities markets. On June 1, it acquired land by issuing 20,000
shares of its $10 par value stock. At the time of the exchange, the land was
advertised for sale at $250,000.
The stock was selling at $11 per share.
Instructions:
Prepare the journal entries for each of the situations above.
Solution
1 Land 110,000
Common Stock ( 5,000 × $20 ) 100,000
Paid in capital in excess of par value 10,000

2 Land ( 20,000 × $11 ) 220,000

Common Stock ( 20,000 × $10) 200,000
Paid in capital in excess of par value 20,000
( 20,000 × $1)

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Exercise ( 14 – 4 )
On January 1, 2005, the stockholders' equity section of Rowan Corporation
shows: Common stock ($5 par value) $1,500,000, paid-in capital in excess of par
value $1,000,000, and retained earnings $1,200,000. During the year, the
following treasury stock transactions occurred.
Mar. 1. Purchased 50,000 shares for cash at $16 per share.
July 1. Sold 10,000 treasury shares for cash at $17 per share.
Sept. 1. Sold 8,000 treasury shares for cash at $15 per share.
Instructions:
(a) Journalize the treasury stock transactions.
(b) Restate the entry for September 1, assuming the treasury shares were sold at
$13 per share
Mar. 1 Treasury Stock ( 50,000 × $16 ) 800,000
Cash 800,000
July. 1 Cash (10,000 × $17 ) 170,000
Treasury Stock (10,000 × $16) 160,000
Paid in capital from Treasury Stock 10,000
(10,000 × $1)

Sept. 1 Cash ( 8,000 × $15 ) 120,000

Paid in capital from Treasury Stock 8,000
( 8,000 × $1) 128,000
Treasury Stock ( 8,000 × $16)

b)
Sept. 1 Cash ( 8,000 × $13 ) 104,000
Paid in capital from Treasury Stock 10,000
Retained Earnings 14,000 128,000
Treasury Stock ( 8,000 × $16)

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Exercise (14 – 5)
Tinker Corporation is authorized to issue both preferred and common stock. The
par value of the preferred is $50. During the first year of operations, the company
had the following events and transactions pertaining to its preferred. Stock.
Feb. 1. Issued 20,000 shares for cash at $51 per share.
July 1. Issued 10,000 shares for cash at $57 per share.
Instructions:
(a) Journalize the transactions.
(b) Post to the stockholders' equity accounts.
(c) Indicate the financial statement presentation of the related account.
Solution
Feb. 1 Cash ( 20,000 × $51 ) 1,020,000
Preferred Stock ( 20,000 × $50 ) 1,000,000
Paid in capital in excess of par 20,000
value –Preferred Stock (20,000 × $1)
July. 1 Cash ( 10,000 × $57 ) 570,000
Preferred Stock ( 10,000 × $50 ) 500,000
Paid in capital in excess of par 70,000
value–Preferred Stock (10,000 × $7)

B) Preferred Stock
Date Explanation Ref. Debit Credit Balance
Feb. 1 1,000,000 1,000,000
July. 1 500,000 1,500,000

Paid in capital in excess of par value – Preferred Stock

Date Explanation Ref. Debit Credit Balance
Feb. 1 20,000 20,000
July. 1 70,000 90,000
c) Preferred Stock – listed first in paid in capital under Capital Stock.
 Paid in capital in excess of par value – preferred stock – listed first
under additional paid in capital.

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Exercise ( 14 – 6 ) Flores Corporation recently hired a new accountant with
extensive experience in accounting for partnerships. Because of the pressure of
the new job, the accountant was unable to review his textbooks on the topic of
corporation accounting. During the first month, the accountant made the
following entries for the corporation’s capital stock.
May 2 Cash 120,000
Capital Stock 120,000
(Issued 10,000 shares of $10 par value common stock at $12 per share)

10 Cash 600,000
Capital Stock 600,000
(Issued 10,000 shares of $50 par value preferred stock at $60 per share)

15 Capital Stock 14,000

Cash 14,000
(Purchased 1,000 shares of common stock for the treasury at $14 per share)

31 Cash 8,000
Capital Stock 5,000
Gain on Sale of Stock 3,000
(Sold 500 shares of treasury stock at $16 per share)

Instructions
On the basis of the explanation for each entry, prepare the entry that should have
been made for the capital stock transactions

May. 2 Cash ( 10,000 × $12 ) 120,000

Common Stock ( 10,000 × $10) 100,000
Paid in capital in excess of par
value – common stock (10,000 × $2) 20,000

May. 10 Cash (10,000 × $60) 600,000

Preferred Stock (10,000 × $50) 500,000
Paid in capital in excess of par value
– preferred stock (10,000 × $10) 100,000

May. 15 Treasury Stock (1,000 × $14) 14,000

Cash 14,000

May. 31 Cash (500 × $16) 8,000

Treasury Stock (500 × $14) 7,000
Paid in capital from treasury stock 1,000
(500 × $2)
Exercise (14 – 7 )
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The following stockholders' equity accounts, arranged alphabetically, are in the
ledger of Dill Corporation at December 31, 2005.
Common Stock ($5 stated value) $1,500,000
Paid-in Capital in Excess of Stated ValueCommon Stock 280,000
Paid in Capital in Excess of Stated valueCommon Stock 900,000
Preferred Stock (8%, $100 par, noncumulative) 500,000
Retained Earnings 1,134,000
Treasury Stock - Common (6,000 shares) 78,000
Instructions:
Prepare the stockholders' equity section of the balance sheet at December 31,
2005.
Solution

Dill Corporation
(Partial) Balance Sheet
December 31 , 2005
Stockholders’ Equity
Paid In Capital
Capital Stock
o 8% Preferred Stock, $100 par value , noncumulative ,
5,000 shares issued. ………………………………………………. 500,000
o Common Stock, no par, $5 stated value , 300,000 shares
issued and 294,000 shares outstanding ………………… 1,500,000
Total Capital Stock ……………………………………………………… 2,000,000
Additional paid in capital
In excess of par value – preferred stock 280,000
In excess of stated value – common stock 900,000
Total additional paid in capital 1,180,000
Total paid in capital ……………………………………………………. 3,180,000
(+) Retained Earnings …………………………………………………….. 1,134,000
Total paid in capital and retained earnings …………………… 4,314,000
Less: Treasury stock ( 6,000 common shares ) ……………. (78,000)
Total stockholders’ equity …………………………………………….. 4,236,000

Exercise ( 14 – 8 )
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The stockholders’ equity section of lumley Corporation at December 31 is as
follows.
LUMLEY CORPORATION
Balance Sheet (partial)
Paid-in capital
 Preferred stock, cumulative, 10,000 shares authorized,
6,000 shares issued and outstanding $ 600,000
 Common stock, no par, 750,000 shares authorized,
600,000 shares issued 1,200,000
Total paid-in capital 1,800,000
(+) Retained earnings 1,858,000
Total paid-in capital and retained earnings 3,658,000
Less: Treasury stock (12,000 common shares) (64,000)
Total stockholders’ equity $3,594,000
Instructions
From a review of the stockholders’ equity section, as chief accountant,
write a memo to the president of the company answering the following questions.
(a) How many shares of common stock are outstanding?
(b) Assuming there is a stated value, what is the stated value of the common
stock?
(c) What is the par value of the preferred stock?
(d) If the annual dividend on preferred stock is $30,000,
what is the dividend rate on preferred stock?
(e) If dividends of $60,000 were in arrears on preferred stock, what would be the

balance in Retained Earnings?

Solution
a) Common Stock Outstanding = ( issued shares – treasury shares)
= ( 600,000 – 12,000 ) = 588,000 shares.
b) The Stated Value of the Common Stock = = 2 per share.
c) The Par Value of the Preferred Stock = = 100 per share.
d) the dividend rate is 5% , or ( 30,000 ÷ 600,000 ) × 100

e) the retained earnings balance is still 1,858,000 , cumulative dividends in

arrears are only disclosed in the notes to the financial statements.

Exercise (14 – 9)
In a recent year, the stockholders’ equity section of Aluminum Company of
America (Alcoa) showed the following (in alphabetical order): additional
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paid-in capital $6,101, common stock $925, preferred stock $55, retained
earnings $7,428, and treasury stock 2,828. All dollar data are in millions.
The preferred stock has 557,740 shares authorized, with a par value of
$100 and an annual $3.75 per share cumulative dividend preference.
At December 31, 557,649 shares of preferred are issued and 546,024 shares
are outstanding. There are 1.8 billion shares of $1 par value common
stock authorized, of which 924.6 million are issued and 844.8 million are
outstanding at December 31.
Instructions
Prepare the stockholders’ equity section, including disclosure of all
relevant data
solution
Aluminum Company Of America
Stockholders’ Equity ( In Millions Of Dollars )
Paid In Capital
Capital Stock
o Preferred Stock, $100 par value , $3.75 cumulative ,
557,740 shares authorized , 557,649 shares issued
and 546,024 shares outstanding ……………………. $ 55
o Common Stock, $1 par value , 1,800,000,000 shares
authorized , 924,600,000 shares issued
and 844,800,000 shares outstanding …………………. 925
Total Capital Stock ……………………………………………………….. 980
Additional paid in capital ……………………………………………. 6,101
Total paid in capital 7,081
(+) Retained Earnings ………………………………………………. 7,428
Total paid in capital and retained earnings 14,509
Less: Treasury stock (2,828)
Total stockholders’ equity $ 11,681

Exercise (14 – 11)

At December 31, mayes has total stockholders’equity of $5,000,000.

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There are no shares of preferred stock outstanding, at year end.
250,000 shares of common stock are outstanding and 20,000 shares
are in treasury.
Instruction
Compute the book value per share of common stock
Solution
Book value per share = = = $20

Problem (14 – 1A )
a)
Jan. 10 Cash ( 100,000 × $3) 300,000
Common Stock ( 100,000 × $2) 200,000
Paid in capital in excess of stated 100,000
value – Common Stock (100,000 × $1)
Mar. 1 Cash ( 10,000 × $55) 550,000
Preferred Stock ( 10,000 × $50) 500,000
Paid in capital in excess of par value 50,000
– preferred stock ( 10,000 × $5 )
Apr. 1 Land 85,000
Common Stock ( 25,000 × $2) 50,000
Paid in capital in excess of stated 35,000
value–Common Stock (85,000 – 50,000)
May. 1 Cash ( 75,000 × $4) 300,000
Common Stock (75,000 × $2) 150,000
Paid in capital in excess of stated value 150,000
– Common Stock (75,000 × $2)
Aug. 1 Organization Expense 50,000
Common Stock ( 10,000 × $2) 20,000
Paid in capital in excess of stated value 30,000
– Common Stock ( 50,000 – 20,000 )

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Sept. 1 Cash ( 5,000 × $6) 30,000
Common Stock (5,000 × $2) 10,000
Paid in capital in excess of stated value 20,000
– common stock (5,000 × $4)
Nov. 1 Cash ( 2,000 × $58) 116,000
Preferred Stock ( 2,000 × $50) 100,000
Paid in capital in excess of par value 16,000
– preferred stock ( 2,000 × $8)

b) Preferred Stock
Date Explanation Ref. Debit Credit Balance
Mar. 1 J1 500,000 500,000
Nov. 1 J1 100,000 600,000
Common Stock
Date Explanation Ref. Debit Credit Balance
Jan. 10 J1 200,000 200,000
Apr. 1 J1 50,000 250,000
May. 1 J1 150,000 400,000
Aug. 1 J1 20,000 420,000
Sept. 1 J1 10,000 430,000

Paid in capital in excess of par value – preferred stock

Date Explanation Ref. Debit Credit Balance
Mar. 1 J1 50,000 50,000
Nov. 1 J1 16,000 66,000

Paid in capital in excess of stated value – common stock

Date Explanation Ref. Debit Credit Balance
Jan. 10 J1 100,000 100,000
Apr. 1 J1 35,000 135,000
May. 1 J1 150,000 285,000
Aug. 1 J1 30,000 315,000
Sept. 1 J1 20,000 335,000
c) Hayslett Corporation
Stockholders’ Equity
Paid In Capital
Capital Stock

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o 6% Preferred Stock, $50 par value , 20,000 shares
authorized , 12,000 shares issued 600,000
o Common Stock, no par, $2 stated value , 500,000
shares authorized, and 215,000 shares issued 430,000
Total capital stock 1,030,000
Additional paid in capital
In excess of par value – preferred stock 66,000
In excess of stated value – common stock 335,000
Total additional paid in capital 401,000
Total paid in capital 1,431,000

Problem (14 – 2A)

Mar. 1 Treasury Stock (5,000 × $7) 35,000
Cash 35,000

June. 1 Cash ( 1,000 × $10) 10,000

Treasury Stock ( 1,000 × $7) 7,000
Paid in capital from treasury stock 3,000
( 1,000 × $3)

Sept. 1 Cash ( 2,000 × $9) 18,000

Treasury Stock ( 2,000 × $7) 14,000
Paid in capital from treasury stock 4,000
( 2,000 × $2)

Dec. 1 Cash ( 1,000 × $5) 5,000

Paid in capital from treasury stock 2,000
(1,000 × $2) 7,000
Treasury Stock ( 1,000 × $7)
Dec. 31 Income Summary 60,000
Closing Retained Earnings 60,000
entry

b)
paid in capital from treasury stock
Date Explanation Ref. Debit Credit Balance
June. 1 J12 3,000 3,000
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Sept. 1 J12 4,000 7,000
Dec. 1 J12 2,000 5,000

Treasury Stock
Date Explanation Ref. Debit Credit Balance
Mar. 1 J12 35,000 35,000
June. 1 J12 7,000 28,000
Sept. 1 J12 14,000 14,000
Dec. 1 J12 7,000 7,000

Retained Earnings
Date Explanation Ref. Debit Credit Balance
Jan.1 Balance √ 100,000
Dec. 31 J12 60,000 160,000

c) Greeve Corporation
Stockholders’ Equity
Paid In Capital
Capital Stock
o Common Stock, $1 par value , 400,000 shares issued
and 399,000 shares outstanding 400,000
Additional paid in capital
In excess of par value 500,000
From treasury stock 5,000
Total additional paid in capital 505,000
Total paid in capital 905,000
(+) Retained Earnings 160,000
Total paid in capital and retained earnings 1,065,000
Less: Treasury stock (1,000 shares at cost ) (7,000)
Total Stockholders’ Equity 1,058,000

Problem (14 – 3A )
a)

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Feb. 1 Cash 25,000
Common Stock (3,000 × $5) 15,000
Paid in capital in excess of stated 10,000
value – common stock
Mar. 20 Treasury Stock - Common (1,500 × $8) 12,000
Cash 12,000
June.14 Cash 36,000
Paid in capital from treasury stock – 4,000
common 32,000
Treasury Stock – Common (4,000 × $8)
Sept. 3 Patent 17,000
Common Stock (2,000 × $5) 10,000
Paid in capital in excess of stated 7,000
value – common stock
Dec. 31 Income Summary 340,000
Closing Retained Earnings 340,000
entry

b)
Preferred Stock
Date Explanation Ref. Debit Credit Balance
Jan. 1 Balance √ 300,000

Common Stock
Date Explanation Ref. Debit Credit Balance
Jan. 1 Balance √ 1,000,000
Feb. 1 J1 15,000 1,015,000
Sept. 3 J1 10,000 1,025,000

Paid in capital in excess of par value – preferred stock

Date Explanation Ref. Debit Credit Balance
Jan. 1 Balance √ 20,000

Paid in capital in excess of stated value – common stock

Date Explanation Ref. Debit Credit Balance
Jan. 1 Balance √ 425,000
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Feb. 1 J1 10,000 435,000
Sept. 3 J1 7,000 442,000

paid in capital from treasury stock – common

Date Explanation Ref. Debit Credit Balance
June. 14 J1 4,000 4,000

Retained Earnings
Date Explanation Ref. Debit Credit Balance
Jan.1 Balance √ 488,000
Dec. 31 J1 340,000 828,000

Treasury stock – common

Date Explanation Ref. Debit Credit Balance
Jan.1 Balance √ 40,000
Mar. 20 J1 12,000 52,000
June. 14 J1 32,000 20,000

C)
Jajoo Corporation
Stockholders’ Equity
Paid In Capital
Capital Stock
o 10% Preferred Stock, $100 par value ,
noncumulative , 5,000 shares authorized,
3,000 shares issued and outstanding 300,000
o Common Stock, no par, $5 stated value ,
300,000 shares authorized, 205,000 shares issued
and 202,500 shares outstanding 1,025,000
Total capital stock 1,325,000
Additional paid in capital
In excess of par value – preferred stock 20,000
In excess of stated value – common stock 442,000
From treasury stock – common 4,000
Total additional paid in capital 466,000
Total paid in capital 1,791,000
(+) Retained earnings 828,000

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Total paid in capital and retained earnings 2,619,000
Less: Treasury stock ( 2,500 common shares ) (20,000)
Total stockholders’ equity 2,599,000

Problem (14 – 4A)

a)
Feb. 1 Land 65,000
Preferred Stock ( 1,000 × $50 ) 50,000
Paid in capital in excess of par value 15,000
– Preferred Stock (65,000 – 50,000 )
Mar. 1 Cash ( 1,000 × $60 ) 60,000
Preferred Stock ( 1,000 × $50 ) 50,000
Paid in capital in excess of par value 10,000
– Preferred Stock ( 1,000 × $10)
July. 1 Cash ( 20,000 × $5.80) 116,000
Common Stock (20,000 × $5) 100,000
Paid in capital in excess of par value 16,000
– Common Stock ( 116,000 – 100,000 )
Sept. 1 Patent (800 × $65) 52,000
Preferred Stock ( 800 × $50 ) 40,000
Paid in capital in excess of par value 12,000
– Preferred Stock (800 × $15)
Dec. 1 Cash ( 10,000 × $6) 60,000
Common stock (10,000 × $5) 50,000
Paid in capital in excess of par value 10,000
– Common Stock ( 60,000 – 50,000 )
Dec. 31 Income Summary 210,000
Retained Earnings 210,000

b) Preferred Stock
Date Explanation Ref. Debit Credit Balance
Jan. 1 Balance √ 200,000
50,000
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Feb. 1 J2 50,000 250,000
Mar. 1 J2 40,000 300,000
Sept. 1 J2 340,000

Common Stock
Date Explanation Ref. Debit Credit Balance
Jan. 1 Balance √ 350,000
july. 1 J2 100,000 450,000
Dec. 1 J2 50,000 500,000
Paid in capital in excess of par value – preferred stock
Date Explanation Ref. Debit Credit Balance
Jan. 1 Balance √ 60,000
Feb. 1 J2 15,000 75,000
Mar. 1 J2 10,000 85,000
Sept. 1 J2 12,000 97,000

Paid in capital in excess of par value – common stock

Date Explanation Ref. Debit Credit Balance
Jan. 1 Balance √ 700,000
July. 1 J2 16,000 716,000
Dec. 1 J2 10,000 726,000

Retained Earnings
Date Explanation Ref. Debit Credit Balance
Jan.1 balance √ 300,000
Dec. 31 J2 210,000 510,000

C)
Knight Corporation
Stockholders’ Equity

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Paid In Capital
Capital Stock
o Preferred Stock, $50 par value , 10% convertible,
10,000 shares authorized, 6,800 shares issued 340,000
o Common Stock, $5 par value,
200,000 shares authorized, 100,000 shares issued 500,000
Total capital stock 840,000
Additional paid in capital
In excess of par value – preferred stock 97,000
In excess of par value – common stock 726,000
Total additional paid in capital 823,000
Total paid in capital 1,663,000
(+) Retained Earnings 510,000
Total Stockholders’ Equity 2,173,000
Problem (14 – 5A)
Mc Grath Corporation
Stockholders’ Equity
Paid In Capital
Capital Stock
o 8% Preferred Stock, $100 par value , noncumulative ,
4,000 shares issued and outstanding 400,000
o Common Stock, no par, $10 stated value , 150,000 shares
issued and 142,000 shares outstanding 1,500,000
Total capital stock 1,900,000
Additional paid in capital
In excess of par value – preferred stock 288,400
In excess of stated value – common stock 690,000
From treasury stock 6,000
Total additional paid in capital 984,400
Total paid in capital 2,884,400
(+) Retained Earnings 776,000
Total paid in capital and retained earnings 3,660,400
Less: Treasury stock ( 8,000 common shares ) (88,000)
Total stockholders’ equity 3,572,400
Problem (14 – 6A)
a)

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(1) Land 296,000
Preferred Stock 240,000
Paid in capital in excess of par value 56,000
– preferred stock
(2) Cash 7,700,000
Common Stock 2,000,000
Paid in capital in excess of stated value 5,700,000
– common stock
(3) Treasury Stock – Common (1,500 × $22) 33,000
Cash 33,000

(4) Cash ( 500 × $28 ) 14,000

Treasury Stock – Common ( 500 × $22) 11,000
Paid in capital from treasury stock 3,000
B) Arnold Corporation
Stockholders’ Equity
Paid In Capital
Capital Stock
o 8% Preferred Stock, $100 par value ,
noncumulative , 40,000 shares authorized,
2,400 shares issued and outstanding 240,000
o Common Stock, no par, $5 stated value ,
2,000,000 shares authorized , 400,000 shares
issued and 399,000 shares outstanding 2,000,000
Total capital stock 2,240,000
Additional paid in capital
In excess of par value – Preferred Stock 56,000
In excess of stated value – Common Stock 5,700,000
From treasury stock – common 3,000
Total additional paid in capital 5,759,000
Total paid in capital 7,999,000
(+) Retained Earnings 560,000
Total paid in capital and retained earnings 8,559,000
Less: Treasury stock ( 1,000 common shares ) (22,000)
Total stockholders’ equity 8,537,000

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