ACCT 201 Principles of Financial Accounting
Practice Exam - Chapter 11
Reporting & Analyzing Equity
Dr. Fred Barbee

Solution to Short-Problem #1

Short Problem #1

A company is authorized to issue 50,000 shares of $50 par value, 8% cumulative, participating preferred stock, and 750,000 shares of $5 par value common stock. Prepare journal entries to record the following selected transactions that occurred during the company's first year of operations:

Jan. 10 Sold 96,000 shares of common stock for $8 cash per share.

Jan. 15 Exchanged 10,000 shares of common stock for equipment with a market value of $80,000.

Feb. 1 Exchanged 500 shares of common stock for $2,500 of legal services incurred during the company's organization.

Solution

Journal Entry For January 10
Cash (96,000 x $8) 768,000

Common Stock (96,000 x $5)
480,000

Contributed Capital in excess of Par Value - CS
288,000

**Journal Entry For January 10**
Cash (96,000 x $8)	768,000
Common Stock (96,000 x $5)		480,000
Contributed Capital in excess of Par Value - CS		288,000

Journal Entry For January 15
Equipment 80,000

Common Stock (10,000 x $5)
50,000

Contributed Capital in Excess of Par Value - CS
30,000

**Journal Entry For January 15**
Equipment	80,000
Common Stock (10,000 x $5)		50,000
Contributed Capital in Excess of Par Value - CS		30,000

Journal Entry For February 1
Organization Costs 2,500

Common Stock (500 x $5)
2,500

Jan.	10	Sold 96,000 shares of common stock for $8 cash per share.
Jan.	15	Exchanged 10,000 shares of common stock for equipment with a market value of $80,000.
Feb.	1	Exchanged 500 shares of common stock for $2,500 of legal services incurred during the company's organization.