Question

AP11-3A (Issuance of common and preferred shares) Prince Observation incorporated on May 1, 2020, and was authorized to issue 500,000 common shares and 100,000, 5% non-participating, convertible preferred shares. During the remainder of 2020, the company entered into the following transactions:

1. Issued 30,000 common shares in exchanged for $600,000.

2. Issued 5,000 preferred shares in exchange for $75,000.

3. Repurchased 3,000 common shares for $24.00 per share in the open market. The company entered into no other transactions that aff ected shareholders’ equity during 2020.

Required

a. Provide the journal entries for each of the transactions.

b. Prince Observation generated $750,000 in net income in 2020 and did not declare any dividends during 2020. Prepare the shareholders’ equity section of the statement of fi nancial position as of December 31, 2020.

Answer 1

given these shares are sine, par value is not assumed to be No - par Shares. Debit credit $ 600000 cash /Bank Common stock $ 600000 $75000 Cash (Bank Preferred stock $75000 $ 72000 Treasury stock ( 3000x24) cash Bank $72000 Shareholder's equity Section Paid in capital common slock (30000 Shares) Preferred stock (sooo Shares) $600000 $75000 $675000 Total pard in capital earnings Retained .$ 750000 1425000 ($42000) less Treasury stock. Total stockholder's equity $1353000