Question

During its first year of operations, Eastern Data Links Corporation entered into the following transactions relating to shareholders’ equity. The articles of incorporation authorized the issue of 7 million common shares, $1 par per share, and 1 million preferred shares, $50 par per share. Feb. 12 Sold 3 million common shares, for $9 per share. 13 Issued 46,000 common shares to attorneys in exchange for legal services. 13 Sold 86,000 of its common shares and 4,000 preferred shares for a total of $990,000. Nov. 15 Issued 375,000 of its common shares in exchange for equipment for which the cash price was known to be $3,808,000. Required: Prepare the appropriate journal entries to record each transaction. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

Answer 1

Answer:

cash                          27,000,000 debit

       common stock                      3,000,000 credit

       additional paid-in               24,000,000 credit

--feb 12th issued shares--

legal services expense 414,000 debit

       common stock                      46,000 credit

       additional paid-in               368,000 credit

--feb 13th shares issued for legal services--

cash                  990,000 debit

  common stock                  86,000 credit

  additional paid-in CS       688,000 credit

  preferred stock                200,000 credit

  additional paid-in PS           16,000 credit

--february 13th issuance of common and preferred shares--

equipment           3,808,000 debit

       common stock                  375,000 credit

      additional paid-in CS      3,433,000 credit

--issuance of shares in exchange of equipment--

Explanation:

Feb 12th

cash proceeds: 3,000,000 x $9 = 27,000,000

common stock: 3,000,000 x $1 =    3,000,000

additional paid-in                            24,000,000

Feb 13th

as the market value of the shares is 9 dollars we recognize this to valued the shares issued for legal services:

46,000 x 9 = 414,000

46,000 x 1  =   46,000

additional      368,000

Feb 13th

we calculate the preferred stock value based on the price of the common shares

total:                                          990,000

common shares: 89,000 x 9 = (774,000)

preferred shares:                      216,000

now we calculate the additional paid-in:

additional on common shares: 86,000 x 8 = 688,000

preferred shares: 4,000 x 50 = 200,000

additional on preferred shares:   16,000

the equipment enter the accounting at his value so we calcualte the additional paid in by the difference:

3,808,000 Equipment - 375,000 face value of shares =  3,433,000

Answer 2

The  appropriate journal entries to record each transaction are:Debit Cash  $27,000,000 ;Credit Common stock $3,000,000; Credit Paid-in capital - excess of par, common $24,000,000.

Journal entries

Debit Cash  $27,000,000

(3,000,000 x $9)

Credit Common stock $3,000,000

(3,000,000 x $1)

Credit Paid-in capital - excess of par, common $24,000,000

($27,000,000-$3,000,000)

February 12

Debit Legal expenses $414,000

(46,000 x %9)

Credit Common stock $46,000

(46,000 x $1)

Credit Paid-in capital - excess of par, common $368,000

($414,000-$46,000)

February 13

Debit Cash $990,000

Credit Common stock $86,000

Credit Paid-in capital - excess of par, common $688,000

(86,000 x $8)

Credit Preferred stock $200,000

(4,000 x $50)

Credit Paid-in capital - excess of par, preferred $16,000

($990,000-$86,000-$688,000-$200,000)

November 15

Debit Property, plant, and equipment $3,808,000

Credit Common stock $375,000

Credit Paid-in capital - excess of par, common $3,433,000

( $3,808,000-$375,000)

Inconclusion the  appropriate journal entries to record each transaction are:Debit Cash  $27,000,000 ;Credit Common stock $3,000,000; Credit Paid-in capital - excess of par, common $24,000,000.

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