On December 1 of the current year, the following accounts and their balances app

Question

On December 1 of the current year, the following accounts and their balances appear in the ledger of Latte Corp., a coffee processor:

At the annual stockholders’ meeting on March 31, the board of directors presented a plan for modernizing and expanding plant operations at a cost of approximately $11,000,000. The plan provided (a) that a building, valued at $3,375,000, and the land on which it is located, valued at $1,500,000, be acquired in accordance with preliminary negotiations by the issuance of 125,000 shares of common stock, (b) that 40,000 shares of the unissued preferred stock be issued through an underwriter, and (c) that the corporation borrow $4,000,000. The plan was approved by the stockholders and accomplished by the following transactions:

Journalize the entries to record the May transactions. Refer to the Chart of Accounts for exact wording of account titles.

Preferred 2% Stock, $50 par (250,000 shares authorized, 80,000 shares issued) $4,000,000 Paid-In Capital in Excess of Par—Preferred Stock 560,000 Common Stock, $35 par (1,000,000 shares authorized, 400,000 shares issued) 14,000,000 Paid-In Capital in Excess of Par—Common Stock 1,200,000 Retained Earnings 180,000,000

Explanation / Answer

Solution:

Preparing the Journal Entries to Record the May Transactions:

Date General Journal Debit Credit May 11 Building $3,375,000 Land $1,500,000 Common Stock (125,000 shares * $35) $4,375,000 Paid-In Capital in Excess of Par - Common Stock [125,000 shares * ($39 - $35)] $500,000 May 20 Cash (40,000 shares * $52) $2,080,000 Preferred Stock (40,000 shares * $50) $2,000,000 Paid-In Capital in Excess of Par - Preferred Stock [40,000 shares * ($52 - $50)] $80,000 May 31 Cash $4,000,000 Mortgage Note Payable $4,000,000

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