Corporate Organization and Capital Stock

20

DEMONSTRATION PROBLEM The Inn was organized on September 16 of this year with a charter providing for authorized capital as follows: a. 1,500 shares of preferred 10 percent $50-par-value stock b. 30,000 shares of no-par common stock ($10 stated value) During the first year of operation, The Inn completed the following transactions: Sept. 16 Received subscriptions to 15,000 shares of common stock at $14 per share, collecting 25 percent of the subscription price.

Oct.

22

Received bill from an attorney for $3,500 representing services performed for processing the articles of incorporation. The attorney agreed to accept 300 shares of common stock for services rendered. Paid-in Capital in Excess of Stated Value, $500.

27

Received subscriptions to 300 shares of preferred 10 percent stock at $53 per share, collecting 10 percent of the subscription price.

4

Subscribers to 15,000 shares of common stock paid an additional 50 percent of the subscription price.

15

Sold 200 shares of preferred 10 percent stock at $52 per share for cash.

22

Bought land and building from B. C. Cranston, one of the promoters. The land is appraised at $51,000, and the building is appraised at $120,000. Cranston has an outstanding mortgage on the property amounting to $82,000. Cranston agreed to accept 8,500 shares of common stock for her equity, and the corporation agreed to assume the outstanding mortgage obligation.

26

Subscribers to 150 shares of preferred 10 percent stock paid the remaining 90 percent of the subscription price. The corporation issued 150 shares of preferred stock.

Nov. 14 22

Paid W. L. Bates $852 as reimbursement for promotional expenses. Subscribers to 7,500 shares of common stock paid an additional 25 percent of the subscription price. The corporation issued 7,500 shares of common stock.

Instructions 1. Open the following selected accounts: 311 Preferred 10 Percent Stock 312 Preferred 10 Percent Stock Subscribed 313 Paid-in Capital in Excess of Par Value 314 Common Stock 315 Common Stock Subscribed Copyright © Houghton Mifflin Company. All rights reserved.

1

316 Paid-in Capital in Excess of Stated Value 2. Record the transactions in general journal form. After each entry, post to the selected ledger accounts. 3. Prepare the Stockholders’ Equity Paid-in Capital section of the balance sheet.

Solution GENERAL JOURNAL DATE 1 2 3 4 5 6

20 — Sept.

DESCRIPTION

PAGE POST. REF.

DEBIT

1 CREDIT 1

16 Subscriptions Receivable, Common Stock Common Stock Subscribed Paid-in Capital in Excess of Stated Value Received subscriptions to 15,000 shares at $14 per share.

210,000.00 315 316

2

150,000.00 60,000.00

9 10 11 12 13

4 5 6

7 8

3

7

16 Cash Subscriptions Receivable, Common Stock Received 25 percent of the subscription of September 16 on 15,000 shares. ( $210,000 x 0.25 )

14

Copyright © Houghton Mifflin Company. All rights reserved.

52,500.00

8

52,500.00

9 10 11 12 13 14

2

Solution (continued) GENERAL JOURNAL DATE 1 2

20 — Sept.

3 4 5 6

DESCRIPTION

PAGE POST. REF.

DEBIT

2 CREDIT 1

22 Organization Expense Common Stock Paid-in Capital in Excess of Stated Value Exchanged 300 shares for attorney's fees.

3,500.00 314 316

2

3,000.00 500.00

6 7

27 Subscriptions Receivable, Preferred 10 Percent Stock Preferred 10 Percent Stock Subscribed Paid-in Capital in Excess of Par Value Received subscriptions to 300 shares at $53 per share.

8 9 10 11 12 13

8

15,900.00 312 313

9

15,000.00 900.00

14

16 17 18 19 20 21

1,590.00

15 16

1,590.00

27 28

19 20 21 22

Oct.

4 Cash Subscriptions Receivable, Common Stock Received 50 percent of the subscription of September 16 on 15,000 shares. ( $210,000 x 0.50 )

105,000.00

23

105,000.00

31 32 33

26 27 28 29

15 Cash Preferred 10 Percent Stock Paid-in Capital in Excess of Par Value Issued 200 shares at $52 per share.

10,400.00 311 313

30

10,000.00 400.00

36 37 38 39 40 41

31 32 33

34 35

24 25

29 30

17 18

22

26

11

13

27 Cash Subscriptions Receivable, Preferred 10 Percent Stock Received 10 percent of the subscription of September 27 on 300 shares. $15,900 x 0.10 ) (

15

25

10

12

14

24

4 5

7

23

3

34

22 Land Building Mortgage Payable Common Stock Paid-in Capital in Excess of Stated Value Exchanged 8,500 shares for building and land.

42

Copyright © Houghton Mifflin Company. All rights reserved.

51,000.00 120,000.00 314 316

35 36

82,000.00 85,000.00 4,000.00

37 38 39 40 41 42

3

Solution (continued) GENERAL JOURNAL DATE 1 2

20 — Oct.

3 4 5 6 7

3

PAGE POST. REF.

DESCRIPTION

DEBIT

CREDIT 1

26 Cash Subscriptions Receivable, Preferred 10 Percent Stock Received 90 percent of the subscription of September 27 on 150 shares. $15,900 x 0.90 x 0.50 ) (

7,155.00

2 3

7,155.00

5 6 7

8

8

26 Preferred 10 Percent Stock Subscribed Preferred 10 Percent Stock Issued 150 shares.

9 10 11

312 311

7,500.00

9

7,500.00

10 11

12 13

4

12

Nov.

14 15 16

14 Organization Expense Cash Paid W. L. Bates as reimbursement for promotional expenses.

852.00

13

852.00

14 15 16

17

17

22 Cash Subscriptions Receivable, Common Stock Received 25 percent of the subscription of September 16 on 7,500 shares. ( $210,000 x 0.25 x 0.50 )

18 19 20 21 22

26,250.00

18

26,250.00

19 20 21 22

23

23

22 Common Stock Subscribed Common Stock Issued 7,500 shares.

24 25 26

315 314

75,000.00

24

75,000.00

25 26

27

27

GENERAL LEDGER ACCOUN T

Preferred 10 Percent Stock

DATE

20— Oct.

ITEM

15 26

200 shares 150 shares

POST. REF.

311

ACCOUNT NO. BALANCE DEBIT

J2 J3

Copyright © Houghton Mifflin Company. All rights reserved.

CREDIT

10,000.00 7,500.00

DEBIT

CRED IT

10,000.00 17,500.00

4

Solution (continued) GENERAL LEDGER ACCOUNT

Preferred 10 Percent Stock Subscribed

DATE

20— Sept. Oct.

ACCOUNT

ITEM

27 26

ACCOUNT

ITEM

27 15

ACCOUNT

ACCOUNT

22 22 22

Oct.

300 shares 8,500 shares 7,500 shares

ITEM

16 22

15,000 shares (7,500 shares)

16 22 22

15,000.00 7,500.00

313

ACCOUNT NO. BALANCE

DEBIT

CREDIT

DEBIT

CREDIT

900.00 400.00

900.00 1,300.00

314

ACCOUNT NO. POST. REF.

BALANCE DEBIT

J2 J2 J3

CREDIT

POST. REF.

J1 J3

POST. REF.

DEBIT

CREDIT

3,000.00 85,000.00 75,000.00

3,000.00 88,000.00 163,000.00

315

ACCOUNT NO. BALANCE DEBIT

CREDIT

DEBIT

CREDIT

150,000.00

150,000.00 75,000.00

75,000.00

Paid-in Capital in Excess of Stated Value

ITEM

CREDIT

15,000.00

Common Stock Subscribed

DATE

20— Sept.

POST. REF.

DEBIT

7,500.00

J2 J2

ITEM

DATE

20— Sept. Nov.

CREDIT

Common Stock

DATE

20— Sept. Oct. Nov.

J2 J3

BALANCE DEBIT

Paid-in Capital in Excess of Par Value

DATE

20— Sept. Oct.

300 shares 150 shares

POST. REF.

312

ACCOUNT NO.

316

ACCOUNT NO. BALANCE

DEBIT

J1 J2 J2

Copyright © Houghton Mifflin Company. All rights reserved.

CREDIT

60,000.00 500.00 4,000.00

DEBIT

CREDIT

60,000.00 60,500.00 64,500.00

5

Solution (continued) 1

Stockholders' Equity

1

2

Paid-in Capital: Preferred 10 Percent Stock, $50 par (1,500 shares authorized, 350 shares issued) Preferred 10 Percent Stock Subscribed (150 shares) Paid-in Capital in Excess of Par Value Common Stock, no-par, stated value $10 per share (30,000 shares authorized, 16,300 shares issued) Common Stock Subscribed (7,500 shares) Paid-in Capital in Excess of Stated Value Total Paid-in Capital

2

3 4 5 6 7 8 9 10 11 12

Copyright © Houghton Mifflin Company. All rights reserved.

3

$ 17,500.00 7,500.00 1,300.00

4 5

$ 26,300.00

6 7

$163,000.00 75,000.00 64,500.00

8 9

302,500.00

10

$328,800.00

11 12

6