Q48PGB - Horngren'S Financial And Managerial Accounting

Question

Journalizing stock issuance and cash dividends and preparing the stockholders’ equity section of the balance sheet

C-Mobile Wireless needed additional capital to expand, so the business incorporated. The charter from the state of Georgia authorizes C-Mobile to issue 120,000 shares of 9%, \(150 par value cumulative preferred stock, and 140,000 shares of \)3 par value common stock. During the first month, C-Mobile completed the following transactions:

Oct. 2 Issued 18,000 shares of common stock for a building with a market value of \(260,000.

6 Issued 650 shares of preferred stock for \)160 per share.

9 Issued 14,000 shares of common stock for cash of \(84,000.

10 Declared a \)13,000 cash dividend for stockholders of record on Oct. 20. Use a separate Dividends Payable account for preferred and common stock.

25 Paid the cash dividend.

Requirements

1. Record the transactions in the general journal.

2. Prepare the stockholders’ equity section of C-Mobile’s balance sheet at October 31, 2018. Assume C-Mobile’s net income for the month was $95,000.

Step-by-Step Solution

Answer

a.

Oct 2- Building $260,000 (Debited) Common stock $54,000 (credited) and Paid-in capital in excess of par $206,000 (credited)

Oct 6- Cash $104,000 (Debited) Preferred stock $97,500 (credited) and Paid-in capital in excess of par $6,500 (credited)

b. The stockholders’ equity of balance sheet at October 31, 2018 shows balance of $543,000.

Step 1: Journals-

Date	Transaction	Debit	Credit
Oct 2	Building	$260,000
	Common stock		$54,000
	Paid-in capital in excess of par		$206,000
	To record issued stock in exchange of building
Oct 6	Cash (650 * $160)	$104,000
	Preferred stock (650 * $150)		$97,500
	Paid in capital in excess of par		$6,500
	To record issued preferred stock
Oct 9	Cash	$84,000
	Common stock (14,000 * $3)		$42,000
	Paid in capital in excess of par		$42,000
	To record issued common stock
Oct 20	Retained earnings	$13,000
	Preferred stock dividend payable		$9,360
	Common stock dividend payable		$3,640
	To record dividend declared
Oct 25	Preferred stock dividend payable ($104,000 * 9%)	$9,360
	Common stock dividend payable	$3,640
	Cash		$13,000
	To record dividend paid

Step 2: Balance Sheet (Partial)-

Balance Sheet (Partial) October 31, 2018
Shareholders’ Equity
Preferred Stock	$97,500
Paid in capital in excess of par- preferred	$6,500
Common stock	$96,000
Paid in capital in excess of par- common	$248,000
Total paid in capital	$448,000
Add: Retained Earnings	$95,000
Total Shareholders’ equity	$543,000