Question

Penland Corporation is authorized to issue both preferred and common stock. The par value of the preferred is $50. During the first year of operations, the company had the following events and transactions pertaining to its preferred stock.

Feb. 1	Issued 40,000 shares for cash at $51 per share.
July 1	Issued 60,000 shares for cash at $56 per share.

Instructions

(a) Journalize the transactions.

(b) Post to the stockholders' equity accounts. (Use T‐accounts.)

(c) Discuss the statement presentation of the accounts.

Answer 1

Solution a:

Journal Entries - Penland Corporation
Date	Particulars	Debit	Credit
1-Feb	Cash Dr	$2,040,000.00
	To Preferred stock		$2,000,000.00
	To Paid in capital in excess of par - Preferred stock		$40,000.00
	(To record issue of preferred stock)
1-Jul	Cash Dr	$3,360,000.00
	To Preferred stock		$3,000,000.00
	To Paid in capital in excess of par - Preferred stock		$360,000.00
	(To record issue of preferred stock)

Solution b:

Preferred Stock
Date	Debit	Date	Credit
		1-Feb	$2,000,000.00
		1-Jul	$3,000,000.00

Paid in capital in excess of par - Preferred stock
Date	Debit	Date	Credit
		1-Feb	$40,000.00
		1-Jul	$360,000.00

Solution c:

Preferred stock would be a part of the Stockholders' Equity section in balance sheet and will be reported along with common stock, retained earnings, and treasury stock. Presentation would be as follows:

Preferred stock, $50 par value, 100000 issued and outstanding - 5000000
Paid in capital in excess of par - Preferred stock - 400000