Question

Liwa Company had the following transactions:

1. Paid the state $2,000 for incorporation fees   

2. Issued 6,000 shares of common stock with a stated value of $10 for $120,000.     

3.   Issued 4000 shares, 10$ par, preferred stock in exchange for equipments. Liwa Corp preferred stock has been actively traded on the market at $60 per share.   

4. Purchased 500 shares its own stock for $ 55 per share.

5. Sold 300 of the purchased shares for $ 53 per share.   

Instructions: Prepare the journal entries to record the above stock transactions.                                                                                                                

Solution question   5:    

Transaction	Account title and explanation	Debit	Credit

Answer 1

JOURNAL ENTRIES:

TRANSACTION ACCOUNT TITLE AND EXPLANATION	DEBIT $	CREDIT $
1. INCORPORATION EXPENSE	2000
CASH (INCORPORATION EXPENSE PAID TO STATE)		2000
2. CASH	120000
COMMON STOCK		60000
ADDITIONAL PAID IN CAPITAL (ISSUED 60000 COMMON STOCK AT PAR $10 AT $120000)		60000
3. EQUIPMENT (4000 * 60)	240000
PREFERRED STOCK (4000 * 10)		40000
ADDITIONAL PAID IN CAPITAL (4000 * 50) (PURCHASED EQUIPMENT IN EXCHANGE OF PREFERRED STOCK AT PAR $10)		200000
4. COMMON STOCK (500 * 10)	5000
ADDITIONAL PAID IN CAPITAL (500 *10)	5000
RETAINED EARNINGS (500 * 35)	17500
CASH (500 * 55) (PURCHASED 500 OWN COMMON STOCK PAR VALUE $10 @ $55)		27500
5. CASH (300 * 53)	15900
COMMON STOCK (300 * 10)		3000
ADDITIONAL PAID IN CAPITAL (300 * 10)		3000
RETAINED EARNINGS (300 * 33) (SOLD 300 OF THE PURCHASED COMMON STOCK PAR VALUE $10 @ $53)		9900