Question

Arial Company had the following transactions in the first year of its operations. A. On January 10, 2005, the company issued 100,000 shares of its $5 par common stock for $8 per share and 20,000 shares of its $40 par, 6 percent preferred stock for $48 per share. B. On March 1, the company issued 10,000 shares of common and 4,000 shares of pre- ferred for $330,000. The market value of the common stock and the preferred stock on March 1 was $10 and $50, respectively. C. On June 1, the company issued 8,000 shares of common stock to its legal counsel as payment for legal services. The legal counsel had billed for 1,000 hours of service, and the normal billing fee is $100 to $120 per hour. The market price of the common stock on June 1 was $11 per share. D. On July 1, 5,000 shares of common stock were purchased as treasury stock at $14 per share. E. On December 15, the board of directors voted to pay the annual cash dividend to pre- ferred stockholders on January 20, 2006. E On December 31, the company determined that its income for the year was $405,000. Required: 1. Record journal entries for these transactions for 2005. 2. Develop the stockholders' equity section of the balance sheet as of December 31, 2005. Date Accounts ACC Debit

Answer 1

A) Journal entries

Date	Accounts	Debit	Credit
10-01-05	Cash	$        800,000
	Common Stock		$ 500,000
	Securities Premium		$ 300,000
	(Common stock issued at premium)
10-01-05	Cash	$        960,000
	6% Preferred Stock		$ 800,000
	Securities Premium		$ 160,000
	(6% Preferred stock issued at premium)
01-03-05	Cash	$        330,000
	Common Stock		$    50,000
	6% Preferred Stock		$ 160,000
	Securities Premium		$ 120,000
	(Common stock and preferred stock issued at premium)
01-06-05	Legal Fees	$          88,000
	Common Stock		$    40,000
	Securities Premium		$    48,000
	(Common Stock issued in lieu of legal fees)
01-07-05	Treasury stock	$          70,000
	Cash		$    70,000
	(Common stock repurchased)
15-12-05	Retained Earnings	$          57,600
	Dividend Payable		$    57,600
	(Dividend declared on preferred stock)

Show Formula in excel for help:

Accounts	Debit	Credit
Cash	=100000*8
Common Stock		=100000*5
Securities Premium		=100000*3
(Common stock issued at premium)
Cash	=20000*48
6% Preferred Stock		=20000*40
Securities Premium		=20000*8
(6% Preferred stock issued at premium)
Cash	330000
Common Stock		=10000*5
6% Preferred Stock		=4000*40
Securities Premium		=+C12-D13-D14
(Common stock and preferred stock issued at premium)
Legal Fees	=8000*11
Common Stock		=8000*5
Securities Premium		=8000*6
(Common Stock issued in lieu of legal fees)
Treasury stock	70000
Cash		=5000*14
(Common stock repurchased)
Retained Earnings	=24000*40*6%
Dividend Payable		=24000*40*6%
(Dividend declared on preferred stock)

B) Shareholder's Equity

SHAREHOLDER'S EQUITY
Paid in Capital
6% Preferred Stock	$     960,000
Common Stock	$     590,000
Retained Earnings	$     347,400
Securities Premium	$     628,000
Less: Treasury Stock	$     (70,000)
Total Stockholder's equity	$ 2,455,400