Question

Question:

Kinkaid Co. is incorporated at the beginning of this year and engages in a number of transactions. The following journal entries impacted its stockholders’ equity during its first year of operations.

	Account and explanation	Debit	Credit
A	Cash Common Stock, \(25 Par Value Paid-In Capital in Excess of Par Value, Common Stock	300,000	250,000 50,000
B	Organization Expenses Common Stock, \)25 Par Value Paid-In Capital in Excess of Par Value, Common Stock.	150,000	125,000 25,000
C	Cash Accounts Receivable Building Notes Payable Common Stock, \(25 Par Value Paid-In Capital in Excess of Par Value, Common Stock	43,000 15,000 81,500	59,500 50,000 30,000
D	Cash Common Stock, \)25 Par Value Paid-In Capital in Excess of Par Value, Common Stock	120,000	75,000 45,000

Required

1. Explain the transaction(s) underlying each journal entry (a) through (d).

2. How many shares of common stock are outstanding at year-end?

3. What is the amount of minimum legal capital (based on par value) at year-end?

4. What is the total paid-in capital at year-end?

5. What is the book value per share of the common stock at year-end if total paid-in capital plus retained earnings equals $695,000?

Short answer

Answer

1. Given below.
2. Number of common stock outstanding at year-end is 20,000.
3. Amount of minimum legal capital at year-end is $500,000.
4. Total paid in capital at year-end is $650,000.
5. Book-value per share is $34.75.

Step-by-step solution

Explain the transaction (1)

a) Issued 10,000 shares of $ 25 Par Value common stock for cash at 30 Per Share.

b) Issued 5,000 shares to promoter in exchange of their efforts estimated, to be worth of 150,000.

c) Issued 2,000 shares of $ 25 par value common stock and Notes payable of $59,500 in exchange for Building of $81,500, cash of $43,000 and Accounts receivable of $15,000.

d) Issued 3,000 shares of $ 25 Par Value common stock for cash at $40 Per Share.

Number of common Stock (2)

	Number
Issued 10,000 shares of $ 25 Par Value common stock for cash	10,000
Issued 5,000 shares to promoter	5,000
Issued 2000 shares of $ 25 par value common stock in exchange	2,000
Issued 3,000 shares of $ 25 Par Value common stock for cash	3,000
Common stock	20,000

Minimum legal capital (3)

	Amount
Issued 10,000 shares of $ 25 Par Value common stock for cash	$ 250,000
Issued 5,000 shares to promoter	125,000
Issued 2000 shares of $ 25 par value common stock in exchange	50,000
Issued 3,000 shares of $ 25 Par Value common stock for cash	75,000
Common stock	$ 500,000

Total Paid up capital (4)

$$\begin{gathered} \mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathit{P}\mathit{a}\mathit{i}\mathit{d}\mathbf{-}\mathit{u}\mathit{p}\mathit{C}\mathit{a}\mathit{p}\mathit{i}\mathit{t}\mathit{a}\mathit{l}\mathbf{=}\mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathit{P}\mathit{a}\mathit{r}\mathit{V}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\mathbf{+}\mathit{P}\mathit{a}\mathit{i}\mathit{d}\mathit{i}\mathit{n}\mathit{C}\mathit{a}\mathit{p}\mathit{i}\mathit{t}\mathit{a}\mathit{l}\mathit{E}\mathit{x}\mathit{c}\mathit{e}\mathit{s}\mathit{s}\mathit{o}\mathit{f}\mathit{P}\mathit{a}\mathit{r}\mathit{V}\mathit{a}\mathit{l}\mathit{u}\mathit{e} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{500}\mathbf{,}\mathbf{000}\mathbf{+}\left(\$50,000+\$25,000+\$30,000+\$45,000\right) \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{650}\mathbf{,}\mathbf{000} \end{gathered}$$

Hence, the total paid in capital at year-end is $650,000.