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26 January, 00:20

Lindsey Hunter Corporation is authorized to issue 50,000 shares of $5 par value common stock. During 2020, 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 2016 at $40 per share ...

Instructions

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

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

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Answers (1)
  1. 26 January, 04:14
    0
    (a).

    Dr Cash 218,000

    Cr Common Stock 25,000

    Cr Paid-in capital - Common stock 193,000

    (to record the issuance of 5,000 share at $45 with cost of $7,000)

    (b)

    Dr Land appraised expenses 46,000

    Cr Common stock 5,000

    Cr Paid-in capital - Common stock 41,000

    (to record the issuance of shares in exchange for land appraisal services at market value of shares issuance)

    Explanation:

    (a)

    Cash receipt is 5,000 x 45 - 7,000 = $218,000; Common stock increase by Par value x stock issuance = 5 x 5,000 = $25,000; Paid-in capital increase by (45-5) x 5,000 - 7,000 = $193,000.

    (b)

    Common stock increase by par value x stock issuance = 1,000 x 5 = $5,000; Appraisal Expenses is increased at the market value of the shares issuance = 1,000 x 46 = $46,000; Paid-in capital account increase by the amount calculated as (Share price - Par value) x share issuance = (46-5) x 1,000 = $41,000.
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