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The Clothing Cove has two classes of stock authorized: 7%, $10 par preferred, and $1 par value common. The following transactions affect stockholders’ equity during 2024, its first year of operations: January 2 Issues 100,000 shares of common stock for $18 per share.February 6 Issues 1,300 shares of 7% preferred stock for $13 per share.September 10 Purchases 12,000 shares of its own common stock for $23 per share.December 15 Resells 6,000 shares of treasury stock at $28 per share.Required:Record each of these transactions. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

Question

The Clothing Cove has two classes of stock authorized: 7%, 10parpreferred,and10 par preferred, and 1 par value common. The following transactions affect stockholders’ equity during 2024, its first year of operations: January 2 Issues 100,000 shares of common stock for 18pershare.February6Issues1,300sharesof718 per share.February 6 Issues 1,300 shares of 7% preferred stock for 13 per share.September 10 Purchases 12,000 shares of its own common stock for 23pershare.December15Resells6,000sharesoftreasurystockat23 per share.December 15 Resells 6,000 shares of treasury stock at 28 per share.Required:Record each of these transactions. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

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Solution

The transactions would be recorded as follows:

  1. January 2: Debit: Cash (100,000 shares * 18)=18) = 1,800,000 Credit: Common Stock (100,000 shares * 1)=1) = 100,000 Credit: Paid-in Capital in Excess of Par Value, Common Stock (100,000 shares * (18−18 - 1)) = $1,700,000

  2. February 6: Debit: Cash (1,300 shares * 13)=13) = 16,900 Credit: Preferred Stock (1,300 shares * 10)=10) = 13,000 Credit: Paid-in Capital in Excess of Par Value, Preferred Stock (1,300 shares * (13−13 - 10)) = $3,900

  3. September 10: Debit: Treasury Stock (12,000 shares * 23)=23) = 276,000 Credit: Cash (12,000 shares * 23)=23) = 276,000

  4. December 15: Debit: Cash (6,000 shares * 28)=28) = 168,000 Credit: Treasury Stock (6,000 shares * 23)=23) = 138,000 Credit: Paid-in Capital from Treasury Stock (6,000 shares * (28−28 - 23)) = $30,000

Please note that the above entries are based on the assumption that the company uses the cost method to account for treasury stock. If the company uses the par value method, the entries would be different.

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