Question

On January 1, Arcola Company issues 6,000 shares of $100 par value preferred stock at $250 cash per share.
On March 1, the company repurchases 6,000 shares of previously issued $1 par value common stock at $106 cash per share. Required:
1. Use the financial statement effects template to record these two transactions.

Answer 1

Answer:

Financial statement effects template is attached in MS Excel file format with this answer to record these two transactions. Please find it

Explanation:

Journal Entries to record the transactions

January 1

Dr.  Cash (6000 x 150)                        $1,500,000

Cr.  Preferred Stock (6000 x 100)                           $600,000

Cr.  Additional paid-in-capital Preferred Stock      $900,000 (Balance)

March 1

Dr.  *Treasury Stock     $636,000

Cr.  Cash                                       $636,000

Working:

*Share repurchase = $106 x 6000 = $636,000

Cash received from issuance of preferred shares, so added in the cash assets and paid against repurchase of stock, so subtracted from the cash assets. Treasury stock is the repurchase its own issued stock and it is a contra equity account which has debit balance so its value is deducted from total equity value. Preferred stock is added to the contributed capital.