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 General Journal DebitCredit 240,000 60,000 a. Cash 33.34 points 300,000 Common Stock, $25 Par Value Paid-In Capital in Excess of Par Value, Common Stock eBook b. Organization Expenses 17e,000 Print Common Stock, $25 Par Value Paid-In Capital in Excess of Par Value, Common Stock 130,006 40,000 References c. Cash Accounts Receivable Building 44,000 16,500 81,600 Notes Payable Common Stock, $25 Par Value Paid-In Capital in Excess of Par Value, Common Stock 59,800 52, 300 30,000 d. Cash 148,000 Common Stock, $25 Par Value Paid-In Capital in Excess of Par Value, common Stock 80,000 68,000
The Correct Answer and Explanation is :
The question involves a company, Kinkaid Co., making journal entries that impact its stockholders’ equity during its first year. Let’s break down each of the transactions, based on the general journal entries provided.
a. Issuance of Common Stock
Journal Entry:
- Debit: Cash $240,000
- Credit: Common Stock, $25 Par Value $60,000
- Credit: Paid-In Capital in Excess of Par Value, Common Stock $180,000
Explanation:
In this transaction, Kinkaid Co. is issuing common stock to raise capital. The company receives $240,000 in cash, which is debited to the Cash account. The par value of the stock is $25, and they issue 2,400 shares (240,000 ÷ 25), so the Common Stock account is credited for $60,000 (2,400 shares × $25). The remaining amount, $180,000, is credited to Paid-In Capital in Excess of Par Value. This represents the amount paid by investors above the par value of the stock.
b. Organization Expenses
Journal Entry:
- Debit: Organization Expenses $17,000
- Credit: Common Stock, $25 Par Value $5,000
- Credit: Paid-In Capital in Excess of Par Value, Common Stock $12,000
Explanation:
Kinkaid Co. incurs organization expenses, which are costs related to the formation of the company, such as legal fees and registration costs. The organization expenses of $17,000 are debited. The company raises the money for these expenses by issuing additional stock, with 200 shares issued (5,000 ÷ 25). The Common Stock account is credited for $5,000 (200 shares × $25), and the excess $12,000 is credited to Paid-In Capital in Excess of Par Value.
c. Acquiring Assets Through Stock Issuance
Journal Entry:
- Debit: Cash $44,000
- Debit: Accounts Receivable $16,500
- Debit: Building $81,600
- Credit: Notes Payable $59,800
- Credit: Common Stock, $25 Par Value $52,300
- Credit: Paid-In Capital in Excess of Par Value, Common Stock $30,000
Explanation:
In this entry, Kinkaid Co. acquires various assets (cash, accounts receivable, and a building) in exchange for issuing stock. The total value of the assets acquired is $142,100 ($44,000 + $16,500 + $81,600). The company issues stock with a par value of $25 per share, issuing 2,092 shares ($52,300 ÷ $25), with $52,300 credited to the Common Stock account. The remaining $30,000 is credited to Paid-In Capital in Excess of Par Value.
d. Cash Payment and Stock Issuance
Journal Entry:
- Debit: Cash $148,000
- Credit: Common Stock, $25 Par Value $80,000
- Credit: Paid-In Capital in Excess of Par Value, Common Stock $68,000
Explanation:
Kinkaid Co. receives $148,000 in cash and issues stock in exchange. The company issues 5,000 shares (80,000 ÷ 25), credited to the Common Stock account for $80,000. The excess amount of $68,000 is credited to Paid-In Capital in Excess of Par Value.
Conclusion:
These journal entries show how Kinkaid Co. raises capital by issuing stock and using the proceeds for various purposes, including covering organization expenses, acquiring assets, and paying down liabilities. Each time stock is issued, the Common Stock account is credited for the par value, and any amount above the par value is credited to Paid-In Capital in Excess of Par Value. These entries collectively affect the stockholders’ equity by increasing it through the issuance of stock and recording the additional capital received above par value.