Question

Settlers of Catan Co is authorized to issue an unlimited number of common shares and 10,000 preferred shares. During its first year, the business completed the following share issuance transactions:

• July 19: Issued 10,000 common shares for cash of $6.50 per share.
• Oct 3: Issued 500, $1.50 preferred shares for $50,000 cash.
• Oct 11: Received inventory valued at $11,000 and equipment with fair value of $8,500 for 3,300 common shares.

Journalize the transactions. Explanations are not required.

Prepare the shareholders’ equity section of Settlers of Catan Co’s balance sheet. The ending balance of Retained Earnings is a deficit of $42,000.

Answer 1

Journal entry

Date	Account and explanation	Debit	Credit
July 19	Cash (10000*6.50)	65000
	Common Stock		65000
Oct 3	Cash	50000
	Preferred stock		50000
Oct 11	Inventory	11000
	Equipment	8500
	Common Stock		19500

Shareholder's equity

Paid in capital
Common Stock	84500
Preferred Stock	50000
Total paid in capital	134500
Retained earnings	-42000
Total Stockholder's equity	92500