Eastport Inc. was organized on June 5, Year 1. It was authorized to issue 470,000 shares of $9 par common stock and 65,000 shares of 4 percent cumulative class A preferred stock. The class A stock had a stated value of $25 per share. The following stock transactions pertain to Eastport Inc.: Issued 16,000 shares of common stock for $14 per share. Issued 15,000 shares of the class A preferred stock for $30 per share. Issued 52,000 shares of common stock for $17 per share.

Required:

a. Prepare general journal entries for these transactions.

b. Prepare the stockholders' equity section of the balance sheet immediately after these transactions.

Answer and Explanation:

a. The journal entries are shown below:

1) Cash Dr (16,000 shares * $14) $224,000

To Common stock (16,000 shares * $9) $144,000

To Additional paid in capital - common (16,000 shares * 5) $80,000

(Being the issuance of the common stock is recorded)

2 Cash Dr (15,000 shares * $30) $450,000

To Preferred stock (15,000 shares * $25) $375,000

To Additional paid in capital - preferred (15,000 shares * $5) $75,000

(Being the issuance of the preferred stock is recorded)

3) Cash Dr (52,000 shares * $17) $884,000

To Common stock (52,000 shares * $9) $468,000

To Additional paid in capital - common (52,000 shares * $8) $416,000

(Being the issuance of the common stock is recorded)

We debited the cash to record this journal entries as it raised the assets and credited the common stock and additional paid in capital, as it also raised the equity of the stockholder

b. The preparation of the stockholder equity section of the balance sheet is presented below:

Stockholders' equity section of the balance sheet

Common stock $612,000 ($144,000 + $468,000)

preferred stock $450,000

Additional paid in capital - preferred $75,000

Additional paid in capital - common $496,000 ($80,000 + $416,000)

Total $1,633,000