C-Cell Wireless needed additional capital to expand, so the business incorporated. The charter from the state of Georgia authorizes C-Cell to issue 50,000 shares of 7%, $50 par value cumulative preferred stock and 120,000 shares of $2 par value common stock. During the first month, C-Cell completed the following transactions:
Oct. 2 Issued 22,000 shares of common stock for a building with a market value of $120,000.
6 Issued 900 shares of preferred stock for $70 per share.
9 Issued 12,000 shares of common stock for cash of $60,000.
10 Declared a $16,000 cash dividend for stockholders of record on Oct. 20. Use a separate Dividends Payable account for preferred and common stock.
25 Paid the cash dividend.
Requirements
1. Record the transactions in the general journal.
2. Prepare the stockholders’ equity section of C-CelPs balance sheet at October 31, 2016. Assume C-Cell’s net income for the month was $96,000.
SOLUTION
Requirement 1
| Date | Accounts and Explanation | Debit | Credit |
|---|---|---|---|
| Oct. 2 | Building | 120,000 | |
| Common Stock—$2 Par Value($2 per share × 22,000 shares) | 44,000 | ||
| Paid-In Capital in Excess of Par—Common ($120,000– $44,000) | 76,000 | ||
| Issued common stock for building | |||
| 6 | Cash ($70 per share × 900 shares) | 63,000 | |
| Preferred Stock—$50 Par Value($50 per share × 900 shares) | 45,000 | ||
| Paid-In Capital in Excess of Par—Preferred ($63,000 − $45,000) | 18,000 | ||
| Issued preferred stock for cash | |||
| 9 | Cash | 60,000 | |
| Common Stock—$2 Par Value($2 per share × 12,000 shares) | 24,000 | ||
| Paid-In Capital in Excess of Par—Common ($60,000 – $24,000) | 36,000 | ||
| Issued common stock for cash | |||
| 10 | Cash Dividends | 16,000 | |
| Dividends Payable—Preferred | 3,150 | ||
| Dividends Payable—Common | 12,850 | ||
| Declared cash dividend.* | |||
| 25 | Dividends Payable—Preferred | 3,150 | |
| Dividends Payable—Common | 12,850 | ||
| Cash | 16,000 | ||
| Paid cash dividend. | |||
| *Total Dividend | $16,000 | ||
|---|---|---|---|
| Dividend to Preferred Stockholders | 7% × $50 ×900 shares | $ 3,150 | |
| Current Year Dividend | (3,150) | ||
| Dividend to Common Stockholders | $12,850 | ||
Requirement 2
| Paid-In Capital: | |
| Cumulative Preferred Stock—7%, $50 Par Value; 50,000 shares authorized, 900 shares issued and outstanding | $ 45,000 |
| Paid-In Capital in Excess of Par—Preferred | 18,000 |
| Common Stock—$2 Par Value; 120,000 shares authorized, 34,000 shares issued and outstanding | 68,000 |
| Paid-In Capital in Excess of Par—Common | 112,000 |
| Total Paid-In Capital | 243,000 |
| Retained Earnings* | 80,000 |
| Total Stockholders’ Equity | $ 323,000 |
*Net income $96,000 – Dividends $16,000 = $80,000
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