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Journal Entry & Stockholder's Section of Balance Sheet

The stockholders' equity section of Hiller Corporation's balance sheet at December 31, 2005, appears below:

Stockholders' equity
Paid-in capital
Common stock, $10 par value, 400,000 shares authorized;
250,000 issued and outstanding $2,500,000
Paid-in capital in excess of par 1,200,000
Total paid-in capital 3,700,000
Retained earnings 600,000
Total stockholders' equity $4,300,000

During 2006, the following stock transactions occurred:

Jan 18 Issued 50,000 shares of common stock at $25 per share
Aug 20 Purchased 20,000 shares of Hiller Corporation's common stock at $22 per share to be held in the treasury.

Nov 5 Reissued Reissued (sold) 7,000 shares of treasury stock for $26 per share.

INSTRUCTIONS
(a) Prepare the journal entries to record the above stock transactions.
(b) Prepare the stockholders' equity section of the balance sheet for Hiller Corporation at December 31, 2006. Assume that net income for the year was $150,000 and that no dividends were declared. Indicate number of outstanding, authorized and issued shares of stock in the prepared stockholders' equity section.

Solution Preview

(a)
The amount of cash raised is 50,000X25=1,250,000. Since the par value is $10, 50,000X10=500,000 will be common stock and 15X50,000=750,000 will be paid in capital in excess of par. The journal entry is
Jan 18 Cash Dr 1,250,000
Common Stock Cr 500,000
Paid in Capital in excess of par Cr 750,000

When shares are repurchased they go to treasury ...

Solution Summary

The solution explains the journal entries relating to stock transactions and the preparation of the stockholders equity section.

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