Penland Corporation is authorized to issue both preferred and common stock. The par value of the preferred is $50. During the first year of operations, the company had the following events and transactions pertaining to its preferred stock.

Feb. 1 Issued 40,000 shares for cash at $51 per share.
July 1 Issued 60,000 shares for cash at $56 per share.
Instructions

(a) Journalize the transactions.

(b) Post to the stockholders' equity accounts. (Use T‐accounts.)

(c) Discuss the statement presentation of the accounts.

Answer and Explanation:

a. The journal entries are shown below:

Cash Dr$2,040,000        (40,000 shares × $51)

      To Preferred stock  $2,000,000      (40,000 shares × $50)

      To Paid in capital in excess of par - Preferred stock  $40,000

(Being the issuance of preferred stock is recorded)

Since the cash is increased so it would be debited along with it the stockholder equity is also increased so preferred stock is credited and the remaining balance is transferred to the paid in capital

Cash Dr$3,360,000        (60,000 shares × $56)

      To Preferred stock  $3,000,000      (60,000 shares × $50)

      To Paid in capital in excess of par - Preferred stock  $360,000

(Being the issuance of preferred stock is recorded)

Since the cash is increased so it would be debited along with it the stockholder equity is also increased so preferred stock is credited and the remaining balance is transferred to the paid in capital

b. The posting is as follows

                                        Preferred Stock

 Date           Debit             Date                Credit

                                                   1-Feb           $2,000,000

                                                   1-Jul           $3,000,000

                       Paid in capital in excess of par - Preferred stock

Date           Debit            Date                 Credit

                                                  1-Feb               $40,000

                                                  1-Jul                $360,000

c. As we know that the stockholder equity comprises of common stock, preferred stock, retained earning, treasury stock, etc

So, the presentation of the accounts is

Preferred stock, $50 par value, 100000 outstanding and issued - $5,000,000

Paid in capital in excess of par - Preferred stock - $400,000

These amount are a sum of preferred stock and paid in capital in excess of par

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