Question

Use the following information to answer the question below. When Sumter Corporation was formed on January 1, 2013, the corporate charter provided for 50,000 shares of $40 par value common stock. The following transactions were among those engaged in by the corporation during its first month of operation: Transaction 1. The corporation issued 200 shares of stock to its lawyer in full payment of the $10,000 bill for assisting the company in drawing up its articles of incorporation and filing the proper papers with the state agency. Transaction 2. The company issued 8,000 shares of stock at a price of $50 per share. Transaction 3. The company issued 7,000 shares of stock in exchange for equipment that had a fair market value of $320,000.

1. The entry to record Transaction 1 would be:

2. The entry to record Transaction 2 would be:

3. The entry to record Transaction 3 would be:

Answer 1

1. Legal Expenses $10,000

Share Premium $2,000 [(50-40)*200]

Common Stock $8,000 [200shares * $40]

(Issue of 200 shares of common stock having par value of $40, at the rate of $50, to settle legal expenses)

2. Cash / Bank $400,000

Share Premium $80,000 [(50-40)*8,000]

Common Stock $320,000 [8,000shares * $40]

(Issue of 8000 shares of common stock having par value of $40, at the rate of $50)

3. Equipment $320,000

Share Premium $40,000 [Balancing figure]

Common Stock $280,000 [7,000shares * $40]

(Issue of 7000 shares of common stock having par value of $40, in exhange for an equipemt for $320,000)