To journalize the transaction for Sheffield Corporation issuing 4,900 shares of its [tex]$20 par value preferred stock for $[/tex]26 per share on February 1, we need to perform the following steps:
1. Calculate the total proceeds from issuing the stock:
The company issued 4,900 shares at a price of [tex]$26 per share.
Total Proceeds = 4,900 shares * $[/tex]26/share = [tex]$127,400
2. Calculate the par value total for the issued shares:
The shares have a par value of $[/tex]20 each.
Par Value Total = 4,900 shares * [tex]$20/share = $[/tex]98,000
3. Calculate the additional paid-in capital:
Additional Paid-In Capital is the amount received over the par value.
Additional Paid-In Capital = Total Proceeds - Par Value Total
= [tex]$127,400 - $[/tex]98,000
= [tex]$29,400
Following these calculations, we can prepare the journal entry:
Journal Entry:
Date: Feb. 1
- Debit: Cash $[/tex]127,400
- This reflects the total proceeds from issuing the shares.
- Credit: Preferred Stock [tex]$98,000
- This reflects the par value of the issued preferred stock.
- Credit: Additional Paid-In Capital on Preferred Stock $[/tex]29,400
- This reflects the amount received over the par value of the stock.
So, the journal entry will be:
| Date | Account Titles and Explanation | Debit | Credit |
|-----------|----------------------------------------------------|----------|------------|
| Feb. 1 | Cash | [tex]$127,400 | |
| | Preferred Stock | | $[/tex]98,000 |
| | Additional Paid-In Capital on Preferred Stock | | $29,400 |
This entry records the issuance of preferred stock and appropriately allocates the portions corresponding to par value and additional paid-in capital.
