The following stockholders’ equity transactions of Williams Corporation occurred during its initial year of existence.
January 7—Articles of incorporation are filed with the state. The state authorized the issuance of 10,000 shares of $50 par value, 9% non-cumulative preferred stock and 200,000 shares of $10 par value common stock.
January 28—40,000 shares of common stock are issued for $14 per share
February 3—80,000 shares of common stock are issued in exchange for land and buildings that have a fair market value of $250,000 and $1,000,000, respectively. The stock traded at $15 per share on that date on the over-the-counter market. (Hint: Since the stock is traded in the over-the-counter market, the value of the stock should be used to assign value to the land and buildings in proportion to their fair market values).
February 24—2,000 shares of common stock are issued to Dewey, Cheatem and Howe, Attorneys-at-Law, in payment for legal services rendered in connection with the incorporation of the company. The value of the legal services rendered was $32,000.
May 1—The company issues $1,500,000 of 7% bonds at 103, which are due on April 30, 2024. Twenty detachable stock warrants entitling the bondholder to purchase for $40 one share of the company’s common stock were attached to each $1,000 bond. The bonds without the warrants would sell for 96. On May 1, the fair value of the company’s common stock was $25/share and the fair value of the warrants was $2/share.
September 12—The company issued 10,000 shares of its $50 par value, 9%, non-cumulative preferred stock at a price of $65/share.
October 15—Declared a 10% stock dividend on outstanding common shares. The dividend will be distributed to stockholders of record on October 31st. The fair market value of the shares on the date of the declaration is $20/share.
November 12—The Company repurchased 22,000 shares of its common stock for $20/share.
December 1—The board of directors declared dividends to be paid to preferred and common stockholders of record of December 15th, payable on January 4th. Common stockholders will receive a dividend of $1/share and all preferred shareholders will receive their full dividend for the year. (Hint: you will need to determine the number of outstanding shares of common and preferred stock as of December 1st).
Requirements
1) Prepare the journal entries required to record the aforementioned transactions.
2) Based on the recording of the preceding transactions, answer the following questions:
a) What is the balance of the common stock account at the end of the year?
b) What is the balance of the Additional Paid-in Capital Account—Common Stock at
the end of the year?