On May 1, 2011, Farmington Company received a charter that authorized it to issu

Question

On May 1, 2011, Farmington Company received a charter that authorized it to issue:
1. 4,000 shares of no-par preferred stock to which a stated value of $12 per share is assigned. The stock is entitled to a cumulative dividend of $9.60, convertible into two shares of common stock, callable at $208, and entitled to $200 per share in liquidation.
2. 1,500 shares of $400 par value, $20 cumulative preferred stock, which is callable at $420 and entitled to $412 in liquidation.
3. 60,000 shares of no-par common stock to which a stated value of $40 is assigned.
Transactionsimage

May
1
All of the $9.60 cumulative preferred was issued at $204 per share, cash.

2
All of the $20 cumulative preferred was exchanged for merchandise inventory, land, and buildings valued at $128,000, $160,000, and $425,000, respectively.

3
Cash of $15,000 was paid to reimburse promoters for costs incurred for accounting, legal, and printing services. In addition, 1,000 shares of common stock were issued to the promoters for their services. The value of all of the services (including those paid in cash) was $55,000.

Required
a. Prepare journal entries for these transactions. b. Assume that retained earnings were $200,000. Prepare the stockholders’ equity section of the May 31, 2011, balance sheet.
On May 1, 2011, Farmington Company received a charter that authorized it to issue:
1. 4,000 shares of no-par preferred stock to which a stated value of $12 per share is assigned. The stock is entitled to a cumulative dividend of $9.60, convertible into two shares of common stock, callable at $208, and entitled to $200 per share in liquidation.
2. 1,500 shares of $400 par value, $20 cumulative preferred stock, which is callable at $420 and entitled to $412 in liquidation.
3. 60,000 shares of no-par common stock to which a stated value of $40 is assigned.
Transactionsimage

May
1
All of the $9.60 cumulative preferred was issued at $204 per share, cash.

2
All of the $20 cumulative preferred was exchanged for merchandise inventory, land, and buildings valued at $128,000, $160,000, and $425,000, respectively.

3
Cash of $15,000 was paid to reimburse promoters for costs incurred for accounting, legal, and printing services. In addition, 1,000 shares of common stock were issued to the promoters for their services. The value of all of the services (including those paid in cash) was $55,000.

Required
a. Prepare journal entries for these transactions. b. Assume that retained earnings were $200,000. Prepare the stockholders’ equity section of the May 31, 2011, balance sheet.
On May 1, 2011, Farmington Company received a charter that authorized it to issue:
1. 4,000 shares of no-par preferred stock to which a stated value of $12 per share is assigned. The stock is entitled to a cumulative dividend of $9.60, convertible into two shares of common stock, callable at $208, and entitled to $200 per share in liquidation.
2. 1,500 shares of $400 par value, $20 cumulative preferred stock, which is callable at $420 and entitled to $412 in liquidation.
3. 60,000 shares of no-par common stock to which a stated value of $40 is assigned.
Transactionsimage

May
1
All of the $9.60 cumulative preferred was issued at $204 per share, cash.

2
All of the $20 cumulative preferred was exchanged for merchandise inventory, land, and buildings valued at $128,000, $160,000, and $425,000, respectively.

3
Cash of $15,000 was paid to reimburse promoters for costs incurred for accounting, legal, and printing services. In addition, 1,000 shares of common stock were issued to the promoters for their services. The value of all of the services (including those paid in cash) was $55,000.

Required
a. Prepare journal entries for these transactions. b. Assume that retained earnings were $200,000. Prepare the stockholders’ equity section of the May 31, 2011, balance sheet.

Explanation / Answer

a. In the books of Farmington Company:

b. Farmington Company

Balance Sheet ( Partial)

May 31, 2011

Date Account Titles Debit Credit $ $ May 1, 2011 Cash 816,000 Preferred Stock 48,000 Paid in Capital in Excess of Stated Value : Preferred Stock 768,000 May 2, 2011 Merchandise Inventory 128,000 Land 160,000 Buildings 425,000 Preferred Stock 600,000 Paid-in Capital in Excess of Par : Preferred Stock 113,000 May 3, 2011 Organization Costs 55,000 Cash 15,000 Common Stock 40,000

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