Page 506 - Accounting Principles (A Business Perspective)

12. Stockholders' equity: Classes of capital stock

• 750 shares of preferred stock are issued for cash at USD 18 per share.
• 1,000 shares of common stock are issued in exchange for legal services received in the incorporation

process. The fair market value of the legal services is USD 9,000.
b. Prepare the paid-in capital section of Terrier's balance sheet as of 2009 June 30.
Solution to demonstration problem A
VIOLET COMPANY
Assumptions
Year Dividends to a b
2005 Preferred $30,000* $30,000
Common 55,000 55,000
2006 Preferred 30,000 30,000
Common 22,500 22,500
2007 Preferred 7,500 7,500
Common -0- -0-
2008 Preferred 15,000 15,000
Common -0- -0-
2009 Preferred 67,500† 30,000‡
Common -0- 37,500
* 4,000 shares X $125 X 0.06 = $30,000
† $30,000 + $22,500 preferred dividend missed in 2007 + $15,000
preferred dividend
missed in 2008.
‡Only the basic $30,000 dividend is paid because the
stock is noncumulative.
Solution to demonstration problem B
a. (1) Cash (+A) 1,200,000
Common Stock (+SE) 300,000
Paid-In Capital in Excess of Par Value—Common Stock 900,000
(+SE)
To record issuance of 50,000 shares at $24 per share.

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