Question

The stockholders’ equity accounts of Novak Corporation on January 1, 2020, were as follows.

Preferred Stock (8%, $52 par, 10,000 shares authorized)		$  442,000
Common Stock ($1 stated value, 1,950,000 shares authorized)		1,350,000
Paid-in Capital in Excess of Par—Preferred Stock		115,000
Paid-in Capital in Excess of Stated Value—Common Stock		1,400,000
Retained Earnings		1,750,000
Treasury Stock (10,500 common shares)		52,500

During 2020, the corporation had the following transactions and events pertaining to its stockholders’ equity.

Feb.	1		Issued 26,000 shares of common stock for $122,000.
Apr.	14		Sold 5,700 shares of treasury stock—common for $32,700.
Sept.	3		Issued 5,100 shares of common stock for a patent valued at $36,000.
Nov.	10		Purchased 1,000 shares of common stock for the treasury at a cost of $6,000.
Dec.	31		Determined that net income for the year was $485,000.

No dividends were declared during the year.

Journalize the transactions and the closing entry for net income.

Answer 1

Solution:

Novak Corporation
Journal Entries
S.No	Particulars	Debit	Credit
01-Feb	Cash Dr	$1,22,000
	To Common Stock (26,000*$1)		$26,000
	To Paid in capital in excess of stated value		$96,000
	(To record issue of common stock)
14-Apr	Cash Dr	$32,700
	To Treasury Stock [($52500/10500)*5700]		$28,500
	To Paid in capital from Treasury Stock		$4,200
	(To record sale of treasury stock)
03-Sep	Patents Dr	$36,000
	To Common Stock (5,100*$1)		$5,100
	To Paid in capital in excess of stated value		$30,900
	(To record issue of common stock)
10-Nov	Treasury Stock Dr	$6,000
	To Cash		$6,000
	(to record purchase of treasury stock)
31-Dec	Income Summary Dr	$4,85,000
	To Retained Earnings		$4,85,000
	(To close net income)