Pomona Corporation issued 60,000 shares of $3 par value common stock at $21 per share and 9,000 shares of $30 par value, ten percent preferred stock at $85 per share. Later, the company purchased 2,000 shares of its own common stock at $23 per share. a. Prepare the journal entries to record the share issuances and the purchase of the common shares b. Assume that Inland sold 1,500 shares of the treasury stock at $28 per share. Prepare the general journal entry to record the sale of this treasury stock. c. Assume that Inland sold the remaining 500 shares of treasury stock at $20 per share. Prepare the journal entry to record the sale of this treasury stock

a.

Dr Cash 2,025,000

Cr Common stock 180,000

Cr Preferred stock 270,000

Cr Additional paid-in capital - common stock 1,080,000

Cr Additional paid-in capital - preferred stock 495,000

(to record the issuance of common stock and preferred stock)

Dr Treasury stock 46,000

Cr Cash 46,000

(to record repurchased of 2,000 common shares at $23 per share)

b.

Dr Cash 42,000

Cr Treasury stock 34,500

Cr Additional paid-in capital (Treasury stock) 7,500

(to record 1,500 common stock sold at $28 per share)

c.

Dr Cash 10,000

Dr Additional paid-in capital (Treasury stock) 1,500

Cr Treasury stock 11,500

(to record 500 common stock sold at $20 per share)

Explanation:

a.

*Issuance:

Cash receipt = Common stock unit price x number of common stock issued + Preferred stock unit price x number of preferred stock issued = 2,025,000

Common stock account and preferred stock account will be recorded as par value x number of stock issued. Thus: Common stock account = 60,000 x 3 = 180,000; Preferred sock account = 9,000 x 30 = $270,000

Additional paid-in capital common stock account balance and Additional paid-in capital preferred stock account balance each is equal to the difference between unit sell price and par value times number of stock issued. Thus: Common stock account = 60,000 x 18 = 1,080,000; Preferred sock account = 9,000 x 55 = $495,000.

* Repurchased:

Cash spent on repurchased = no of repurchased x repurchased unit price = 2,000 x 23 = $46,000

b.

Cash receipt (Debit) = no of common stock sold x unit selling price = 1,500 x 28 = $42,000

Treasury stock will be credited at the amount equal : repurchased price x no of common stock sold = 23 x 1,500 = $34,500

The difference will be credited into Additional paid-in capital (Treasury stock) $7,500

c.

Cash receipt (Debit) = no of common stock sold x unit selling price = 500 x 20 = $10,000

Treasury stock will be credited at the amount equal : repurchased price x no of common stock sold = 23 x 500 = $11,500

The difference will be debited into Additional paid-in capital (Treasury stock) $1,500.