Beauty Island Corporation began operations on April 1 by issuing 55,000 shares of $5 par value common stock for cash at $13 per share. In addition, Beauty Island issued 1,000 shares of $1 par value preferred stock for $6 per share. Journalize the issuance of the common and preferred shares.

Question

Jenny Roberson

Business

24 February, 04:55

Beauty Island Corporation began operations on April 1 by issuing 55,000 shares of $5 par value common stock for cash at $13 per share. In addition, Beauty Island issued 1,000 shares of $1 par value preferred stock for $6 per share. Journalize the issuance of the common and preferred shares.

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Koen Bradshaw · Answer 1

The journal entry for issue of common shares is as follows:

1. Cash A/c $715 000 Dr ($55,000*$13)

To common stock $275,000 ($55,000*5)

To Additional paid up capital $4,40000 ($55000*8)

The journal entry for issue of Preference shares is as follows:

Cash A/c $6,000 Dr ($1,000*$6)

To Preferred Shares $1,000 ($1,000*1)

To Additional paid up capital $5,0000 ($1,000*5)

Explanation:

Mainly there are two types of shareholders in the company i. e. equity and preference shareholders. The equity shareholders is the shareholders who carry voting right in the company whereas preference shareholders are those who don't have voting right. The shares means a small part in the company which represent the ownership in the company according to their shares percentage. Whereas, stock represent the securities which are listed in stock exchange.

Following information is given in the question:

1. Issue of common shares = 55,000

2. Par value of common stock = $5

3. Cash for per share = $13

4. Issue of preference shares = 1,000

5. Par value of preference stock = $1

6. Per share for preference stock = $6

Journal Entry: The journal entry is the first stage to record the debit and credit side. Debit here means the expenditure incurred by the company whereas the Credit shows the income side which adds value to the company profit.

The journal entry for issue of common shares is as follows:

1. Cash A/c $715 000 Dr ($55,000*$13)

To common stock $275,000 ($55,000*5)

To Additional paid up capital $4,40000 ($55000*8)

The journal entry for issue of Preference shares is as follows:

Cash A/c $6,000 Dr ($1,000*$6)

To Preferred Shares $1,000 ($1,000*1)

To Additional paid up capital $5,0000 ($1,000*5)

Note: The remaining amount will be credited to additional paid up capital with remaining balance.