Question

Issuing Stock Work Place Products Inc., a wholesaler of office products, was organized on July 1 of the current year, with an authorization of 125,000 shares of 1% preferred stock, $65 par and 350,000 shares of $20 par common stock. The following selected transactions were completed during the first year of operations: Journalize the transactions. July. 1. Issued 90,000 shares of common stock at par for cash. July. 1 July. 1 Issued 500 shares of common stock at par to an attorney in payment of legal fees for organizing the corporation. July. 1 Aug. 7. Issued 23,500 shares of common stock in exchange for land, buildings, and equipment with fair market prices of $86,000, $467,000, and $105,000, respectively. For a compound transaction, if an amount box does not require an entry, leave it blank. Aug. 7 Sept. 20. Issued 18,000 shares of preferred stock at $77 for cash. For a compound transaction, if an amount box does not require an entry, leave it blank. Sept. 20 -

Answer 1

Solution:

Date	Journal	Debit	Credit
July 1	Cash	1,800,000
	Common Stock (90,000 shares x $20)		1,800,000
	(Being issue of common stock at par)
July 1	Organizational Expenses	10,000
	Common Stock (500 shares x $20)		10,000
	(Being issue of common stock to attorney general in settlement of organizational expenses)
Aug 7	Land	86,000
	Building	467,000
	Equipment	105,000
	Common stock (23,500 shares x 20)		470,000
	Paid in capital in excess of par--- Common stock (Note 1)		188,000
	(Being issue of common stock in exchange of land, building, equipment)
Sept 20	Cash (18,000 shares x $77)	1,386,000
	Preferred Stock (18,000 shares x $65)		1,170,000
	Paid in capital in excess of par --- Preferred stock (Note 2)		216,000
	(Being issue of preferred stock for cash)

Workings:

Paid in capital in excess of par is the difference between the issue or settlement price and  the par value of stock.

Note 1: Calculation of Paid in capital in excess of par

Total exchange value of land, building,equipment = $86,000+ $467,000 +$105,000 =$ 658,000

Par Value of stock issued = 23,500 x 20 = $ 470,000.

Paid in capital in excess of par of common stock = $658,000 - $470,000 = $188,000

Note 2: Calculation of Paid in capital in excess of par

Total issue price = 18,000 shares x $77= 1,386,000

Par value of stock = 18,000 shares x $65 = 1,170,000

Paid in capital in excess of par of preferred stock = $1,386,000 - $1,170,000 = $ 216,000