Question

Uzi Company received a charter granting the right to issue 200,000 shares of $2 par value common stock and 10,000 shares of 9% cumulative and nonparticipating, $50 par value preferred stock that is callable at $80 per share. Selected transactions are presented below.

2014
Feb.	19	Issued 45,000 shares of common stock at par for cash.
	22	Gave the corporation’s promoters 30,000 shares of common stock for their services in getting the corporation organized. The directors valued the services at $70,000.
Mar	30	Exchanged 100,000 shares of common stock for the following assets at fair market values: land, $25,000; building, $100,000; and machinery, $125,000.
Dec.	31	Closed the Income Summary account. A $25,000 loss was incurred.
2015
Jan.	12	Issued 1,000 shares of preferred stock at $75 per share.
Dec.	15	The board of directors declared an 9% dividend on preferred shares and $0.10 per share on outstanding common shares, payable on January 31 to the January 17 stockholders of record.
	31	Closed the Income Summary account. A $69,000 net income was earned.
2016
Jan.	31	Paid the previously declared dividends.

Required:

1.      Prepare general journal entries to record the selected transactions.

2.      Prepare a stockholders’ equity section as of the close of business on December 31, 2016.

3.      Determine the book value per preferred share and per common stock as of December 31, 2016.

Answer 1

(1) -- Prepare general journal entries to record the selected transactions.

Answer -

Date	General journal	Debit ($)	Credit ($)
Feb. 19, 2014	Cash Common Stock [45000 shares * $2 par value]	90000 -	- 90000
Feb. 22, 2014	Organization Expenses Common Stock [30000 shares * $2 par value] Paid-In Capital in Excess of Par Value, Common Stock [Difference]	70000 - -	- 60000 10000
Mar. 30, 2014	Land Buildings Machinery Common Stock [100000 shares * $2 par value] Paid-In Capital in Excess of Par Value, Common Stock [Difference]	25000 100000 125000 - -	- - - 200000 50000
Dec. 31, 2014	Retained Earnings [Given in question] Income Summary	25000 -	- 25000
Jan. 12, 2015	Cash [1000 shares * $75] Preferred Stock [1000 shares * $50 par value] Paid-In Capital in Excess of Par Value, Preferred Stock	75000 - -	- 50000 25000
Dec. 15, 2015	Retained Earnings Common Dividend Payable [175000 shares * $0.10 per share] Preferred Dividend Payable [$50000 * 9%]	22000 - -	- 17500 4500
Dec. 31, 2015	Income Summary Retained Earnings	69000 -	- 69000
Jan. 31, 2016	Preferred Dividend Payable Common Dividend Payable Cash	4500 17500 -	- - 22000

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(2) -- Prepare a stockholders’ equity section as of the close of business on December 31, 2016.

Answer -

Stockholders’ Equity

Preferred stock, $50 par value, 9% cumulative and nonparticipating, 10000 shares authorized, 1000 shares issued	. $50000
Paid-in capital in excess of par, preferred stock	$25000	$75000 [$50000+$25000]
Common stock, $2 par value, 200000 shares authorized, 175000 issued	$350000 [175000*$2]
Paid-in capital in excess of par, common stock	$60000 [$10000+$50000]	$410000 [$350000+$60000]
Total paid-in capital [$75000 + $410000]	-	$485000
Retained earnings [$69000 - $25000 - $22000]	-	$22000
Total stockholders’ equity [$485000 + $22000]	-	$507000

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(3) -- Determine the book value per preferred share and per common stock as of December 31, 2016.

Answer -

		Explanation	Book value per share
I.	Book value per preferred share	Call value (or par value if stock does not have a call value) plus any dividends in arrears if cumulative stock. There are no dividends in arrears.	$80
II.	Book value per common share	(Total equity less equity applicable to preferred stock) divided by number of shares of common stock outstanding = ($507000 - $80000) / 175000 shares	$2.44