Question

Stockholders’ Equity: Information and Entries from Comparative Data

Comparative stockholders’ equity sections from two successive years of balance sheets from Farrow, Inc., are as follows:

	Dec. 31, 2018	Dec. 31, 2017
Paid-in Capital
8 Percent preferred stock, $40 par value, authorized 20,000 shares;
issued and outstanding, 2017: 10,000 shares; 2018: 12,000 shares	$480,000	$400,000
Common stock, no-par value, $5 stated value, authorized 80,000
shares; issued, 2017: 32,000 shares; 2018: 40,000 shares	200,000	160,000
Additional Paid-in Capital
In excess of par value—Preferred stock	224,000	144,000
In excess of stated value—Common stock	232,000	160,000
From treasury stock	21,000
Retained earnings	350,000	229,000
		$1,093,000
Less: Treasury stock (8,000 shares common) at cost	0	179,000
Total Stockholders’ Equity	$1,507,000	$914,000

No dividends were declared or paid during 2018.

Required

Prepare the journal entries for the transactions affecting stockholders’ equity that occurred during 2018. Do not prepare the journal entry for closing net income to retained earnings. Assume that any share transactions were for cash.

General Journal
Ref.	Description	Debit	Credit
1	CashPreferred StockPaid-in-Capital in Excess of Par Value - Preferred StockCommon StockPaid-in-Capital in Excess of Par Value - Common StockTreasury Stock - CommonPaid-in-Capital from Treasury Stock
	CashPreferred StockPaid-in-Capital in Excess of Par Value - Preferred StockCommon StockPaid-in-Capital in Excess of Par Value - Common StockTreasury Stock - CommonPaid-in-Capital from Treasury Stock
	Paid-in-Capital in Excess of Par Value - Preferred Stock
	Issued shares of preferred stock.
2	CashPreferred StockPaid-in-Capital in Excess of Par Value - Preferred StockCommon StockPaid-in-Capital in Excess of Par Value - Common StockTreasury Stock - CommonPaid-in-Capital from Treasury Stock
	Common Stock
	CashPreferred StockPaid-in-Capital in Excess of Par Value - Preferred StockCommon StockPaid-in-Capital in Excess of Stated Value - Common StockTreasury Stock - CommonPaid-in-Capital from Treasury Stock
	Issued common stock.
3	CashPreferred StockPaid-in-Capital in Excess of Par Value - Preferred StockCommon StockPaid-in-Capital in Excess of Par Value - Common StockTreasury Stock - CommonPaid-in-Capital from Treasury Stock
	Treasury Stock - Common
	CashPreferred StockPaid-in-Capital in Excess of Par Value - Preferred StockCommon StockPaid-in-Capital in Excess of Par Value - Common StockTreasury Stock - CommonPaid-in-Capital from Treasury Stock
	Sold treasury stock.

Answer 1

Solution:

S. no.	Account Title	Debit	Credit
1	Cash	160000
	Preferred Stock (480000-400000)		80000
	Paid in Capital in excess of par- Preferred stock (224000-144000)		80000
2	Cash	112000
	Common Stock (200000-160000)		40000
	Paid in Capital in excess of Stated value- Common stock (232000-160000)		72000
	(Record issue of preferred shares)
3	Cash	200000
	Treasury Stock		179000
	Paid in capital from treasury stock		21000