Question

E15-6 (Stock Issuances and Repurchase) Lindsey Hunter Corporation is authorized to issue 50,000 shares of $5 par value common stock. During 2014, Lindsey Hunter took part in the following selected transactions.

1. Issued 5,000 shares of stock at $45 per share, less costs related to the issuance of the stock totaling $7,000.

2. Issued 1,000 shares of stock for land appraised at $50,000. The stock was actively traded on a

national stock exchange at approximately $46 per share on the date of issuance.

3. Purchased 500 shares of treasury stock at $43 per share. The treasury shares purchased were issued

in 2010 at $40 per share.

Instructions

(a)Prepare the journal entry to record item 1.

(b) Prepare the journal entry to record item 2.

(c)Prepare the journal entry to record item 3 using the cost method.

Answer 1

The required journal entry is provided below: Account Titles and Explanation Debit S218,000 Credit Cash {(5,000 x S45) $7,000 Common stock (5,000 x $5) Paid-in capital in excess of par - Common stock $218,000- S25,0 S25,000 S193,000 o record common stock issued) The required journal entry is provided below: Account Titles and Explanation Debit Credit Land (1,000 $46 S46,000 S5,000 Common stock (1,000 × S5 Paid-in capital in excess of par - Common stock 1,000 $41 S41,000 To record land purchased in exchange ofc ofcommon stock) The fair value of the stock is a more objective measure than the appraised value of land and hence it is used to calculate the value of exchange. The required journal entry is provided below: Account Titles and Explanation Debit Credit Treasury stock (500 x S43 S21.500 Cash o record $21,500 e of treasury stock