Powell issued 2,500 shares of 52 per common stock as payment for legal services.

Question

Powell issued 2,500 shares of 52 per common stock as payment for legal services. Although Powell's stock is not traded on any exchange, the agreed-upon values of the legal services is $80,000. Powell issued 4,500 shares of 6% commulative preferred stock, $100 per value, for $106 per share. The board of directors declared a dividendo $1.25 per share on the common stock. Powell's net income for 2010 was $675,000. Compluse in good form the stockholder's equity section of a balance share prepared for Powell at December 31, 2010. Stockholder's equity:

Explanation / Answer

Issued COmmon Stock = $500,000/$2 = 250,000 shares Lets look at Journal entries first :- A. mm-dd-2010 Legal Services A/C Dr $80,000 Common Stock (2500 × $2) Cr $5,000 Additional Paid-in-Capital Cr $75,000 Issue 2500 shares to settle attorney's invoice for Legal Services B. mm-dd-2010 Cash Dr $477,000 Preferred Stock (4,500 × $100) Cr $450,000 Additional Paid-in-Capital (Preferred Stock 4500*$6) Cr $27,000 Sale of 4500 shares of preferred stock of $100 at $106 per share C. Retained Earnings Dr 315,625 Dividend Payable (250,000+2500 = 252,500shares@1.25) Cr 315,625 Authorized dividend on Common stock @$1.25 per share D. Retained Earnings Dr 27,000 Dividend Payable on Pref Stock (4500shares of $100@6%) Cr 27,000 Dividend on Pref Shares E. Retained Earnings of 2009 $2400,000 Add: Ret Earning sof 2010 $675,000 Less : Common Stock Div $315,625 Less : Pref Shares Div $27000 ----------------------------------------- Bal Retained earnings of 2010 $2732,375 ------------------------------------------------ So STockeholder Equity section for 2010 wil be as below :- Preferred Stock, $100 par value, 4500 shares of 6% CUmulaive issued and outstanding $450,000 Additional Paid-in-Capital - Pref Stock $27,000 Common Stock, $2 par value, 500,000 shares authorized, 252,500 shares issued, and outstanding $505,000 Additional Paid-in-Capital-Common Stock $1825,000 Retained Earnings $2732,375 ----------------------------------------------- Total Stockholders' Equity $5539,375

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