Q2SE_1 - Horngren'S Financial And Managerial Accounting

Question

Question: Journalizing issuance of stock—at par and at a premium

Colorado Corporation has two classes of stock: common, \(3 par value; and preferred, \)30 par value.

Requirements

1. Journalize Colorado’s issuance of 4,500 shares of common stock for $6 per share.

Step-by-Step Solution

Answer

Answer

Cash will be debited with $27,000 and Common stock- $3 at par; Paid- in capital in excess of par will be credited with $13,500 individually. 

Step 1: Basic calculation

$$\begin{gathered} \mathbf{CashReceived}\mathbf{=}\mathbf{NumberofShares}\mathbf{\times }\mathbf{ValuePerShare} \\ \mathbf{=}\mathbf{4}\mathbf{,}\mathbf{500}\mathbf{\times }\mathbf{\$}\mathbf{6} \\ \mathbf{=}\mathbf{\$}\mathbf{27}\mathbf{,}\mathbf{000} \\ \mathbf{CommonStock}\mathbf{=}\mathbf{NumberofShares}\mathbf{\times }\mathbf{ParValuePerShare} \\ \mathbf{=}\mathbf{4}\mathbf{,}\mathbf{500}\mathbf{\times }\mathbf{\$}\mathbf{3} \\ \mathbf{=}\mathbf{\$}\mathbf{13}\mathbf{,}\mathbf{500} \end{gathered}$$

Step 2: Journals entry of issuance of stock

Date	Transaction	Debit	Credit
	Cash	$27,000
	Common stock- $3 at par		$13,500
	Paid- in capital in excess of par		$13,500
	To record 4,500 common stocks issued at $6.