Question

Ava School of Learning obtained a charter at the start of the year that authorized 50,000 shares of no-par common stock and 20,000 shares of preferred stock, par value $10. During the year, the following selected transactions occurred:

1. Collected $32 cash per share from four individuals and issued 4,200 shares of common stock to each.
2. Issued 5,200 shares of common stock to an outside investor at $32 cash per share.
3. Issued 7,200 shares of preferred stock at $17 cash per share.

Required:

1. Prepare the journal entries indicated for each of these transactions: record the issuance of 7,200 shares of preferred stock with a par value of $10 for a price of $17 per share.

2. Prepare the stockholders’ equity section of the balance sheet at December 31. At the end of the year, the accounts reflected a net income of $28,000. No dividends were declared.

AVA SCHOOL
Balance Sheet (Partial)
At December 31
Stockholders’ Equity
Contributed Capital:
Total Contributed Capital	0
Total Stockholders’ Equity	$0

Answer 1

Answer
1
	Account Title	Debit	Credit
a	Cash	$      537,600		4200*4*32
	Common Stock		$      537,600
b	Cash	$      166,400		5200*32
	Common Stock		$      166,400
c	Cash	$      122,400		7200*17
	Preferred Stock		$        72,000	7200*10
	Additional Paid in capital, Preferred Stock		$        50,400
2
	Stockholders' Equity
	Contributed Capital:
	Common Stock (537600+166400)	$      704,000
	Preferred Stock	$        72,000
	Additional Paid in capital, Preferred Stock	$        50,400
	Total Contributed Capital	$      826,400
	Retained earnings	$        28,000
	Total Stockholders' Equity	854400