Question

E15-2 (Recording the Issuance of Common and Preferred Stock) Kathleen Battle Corporation was organized on January 1, 2014. It is authorized to issue 10,000 shares of 8%, $100 par value preferred stock, and 500,000 shares of no-par common stock with a stated value of $1 per share. The following stock transactions were completed during the first year.

Jan. 10 Issued 80,000 shares of common stock for cash at $5 per share.

Mar.1 Issued 5,000 shares of preferred stock for cash at $108 per share.

Apr. 1 Issued24, 000shares of common stock for land. The asking price of the land was$90,000; the fair value of the land was $80,000.

May1 Issued 80,000 shares of common stock for cash at $7 per share.      

Aug.1 Issued 10,000 shares of common stock to attorneys in payment of their bill of $50,000 for services rendered in helping the company organizes.

Sept. 1 Issued 10,000 shares of common stock for cash at $9 per share.

Nov.1 Issued 1,000 shares of preferred stock for cash at $112 per share.

Instructions

Prepare the journal entries to record the above transactions

Answer 1

Concepts and reason

Transaction: It is an agreement which creates a legal obligation between two or more parties for exchanging the goods or providing the services. The transactions which can be measured in money are to be recorded in financial books.

Fundamentals

Journal Entry: It refers to an entry in the journal. It is a way to record the accounting transactions in a chronological way, which is when the transaction occurs.

Ledger: It is the account or graphical representation of general ledger account or its entries. The left side of T-account is debit side and the right side represents as credit side.

Rules of debit and credit have been followed for journalizing the various transactions and these are:

Debit the Receiver and Credit the Giver: It is used for personal accounts. It indicates when the organization receives something from anyone then, what is received would be debited and the giver would be credited. 

Debit what comes in and Credit what goes out: It is used for real accounts. It indicates when the organization purchased or receives any asset then it would be debited and on the other side, when the asset is going out of the organization then, it would be credited.
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‎Debit all expenses and losses, credit all incomes and gains: It is used in case of a nominal account, and according to this rule all the expenses and losses incurred by the organization would be debited and on the other side, all the incomes and gain of the organization would be credited. There are five categories of accounts:

Assets: It can be defined as the resources which are controlled and owned by the organization and which are capable of providing some future benefits for operating the core business of the organization. Whenever any asset has been purchased or any transaction which increases the amount of asset, the asset account will be debited.

‎Liabilities: These are referred as company’s financial obligation arising during the course of Business Cycle, which will be settled by the outflow of resources. Whenever any transaction raises the amount of liability, the liability account will be credited.

Revenues: It is income that an entity earns from its normal business operations. It reflects the amount which is received by the firm by manufacturing or providing goods and services. Whenever income has been earned or due, the revenue account will be credited.

Expenses: These are the gross outflows incurred by a business entity while carrying out their regular business operations like manufacturing and providing goods and services. Whenever any expense has been due to be incurred, the expense account has been debited.

Capital account: This account represents the balance of amount invested by the stockholders. It also includes the earnings which are due and not withdrawn by the stockholders. Whenever any transaction increases the amount of capital, the capital account will be credited.

KB issued 80,000 common stocks for cash at $5 per share

KB issued 5,000 preferred stocks for cash at $108 per share.

KB issue 24,000 common stock for the purchase of land and fair value for land was $80,000 asking price of land was $90,000.

KB issued 80,000 number of common stock for cash at $7 per share.

KB issued 10,000 common stock against attorney’s bill of $50,000 for their services to the company.

KB issued 10,000 in numbers common stock for cash at $9 per share.

KB issued 1,000 in numbers of preferred stock for cash at $112 per share.

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