Arnold Corporations Has Been Authorized To Issue 40,000 Shar

Arnold Corportions Has Been Authorized To Issue 40000 Shares Of 100

Arnold Corportions has been authorized to issue 40,000 shares of $100 par value, 8%, noncumulative preferred stock and 2,000,000 shares of no-par common stock. The corporation assigned a $5 stated value to the common stock. The financial information includes preferred stock valued at $240,000, paid-in capital in excess of par for preferred at $56,000, common stock at $2,000,000, paid-in capital in excess of stated value for common at $5,700,000, treasury stock (1,000 shares) at $22,000, paid-in capital from treasury stock at $3,000, and retained earnings at $560,000. The assignment requires preparing a journal entry for the issuance of preferred stock in exchange for land.

Paper For Above instruction

The issuance of stock in exchange for land is a common corporate transaction that impacts both the asset and equity side of a company's balance sheet. In this case, Arnold Corporations is issuing preferred stock to acquire land, which requires careful accounting to reflect the transaction accurately. The correct journal entry depends on the fair value of the stock issued and the land received, with particular attention to the stated values, paid-in capital, and classification of the preferred stock.

When a corporation issues preferred stock in exchange for land, the transaction is recorded at the fair value of the consideration given or received, whichever can be more reliably measured. Since the preferred stock has a specified $100 par value and 8% dividend rate, and the corporation's preferred stock valued at $240,000, the key pieces of information are the number of preferred shares issued, their par value, and any additional paid-in capital.

Suppose Arnold Corporation issues preferred stock at par, and the fair value of the land is to be used as the measure of the transaction's value. If the corporation issues 40,000 preferred shares at $100 par value, the total amount of preferred stock issued is 40,000 shares * $100 = $4,000,000. However, because the preferred stock's book value totals $240,000, this suggests that the shares are issued at a premium, or rather, that the preferred stock is valued at $6 per share ($240,000 / 40,000 shares).

Given that the preferred stock is issued in exchange for land, and assuming the land’s fair market value is equivalent to the stock’s valuation or as otherwise stipulated, the journal entry would be made accordingly. The entry reflects the increase in land (asset), the increase in preferred stock (equity), and additional paid-in capital in excess of par if applicable.

The journal entry to record the issuance of preferred stock for land, based on the example values provided, would generally be:

Debit: Land (Asset) for the fair value of land received

Credit: Preferred Stock for the aggregate par value of the preferred shares issued

Credit: Paid-in Capital in Excess of Par – Preferred for the amount exceeding par value

If the preferred stock’s fair value is $6 per share, and 40,000 shares are issued, the total value assigned to these shares is $240,000, which matches the preferred stock’s total value in the balance sheet. Hence, the journal entry would be:

Debit: Land $240,000

Credit: Preferred Stock, $100 par value per share, 40,000 shares issued = $4,000,000

However, since the stock’s total amount on the balance sheet is only $240,000 for preferred stock, it indicates issuance at a valuation that equates to the preferred stock’s actual recorded value, not the par value times the number of shares. Therefore, the credit to preferred stock would be for $240,000, and any amount above this would be credited to paid-in capital in excess of par.

Based on this, the accurate journal entry assuming the land's value is $240,000 (matching preferred stock valuation) would be:

Journal Entry:

But this appears inconsistent because the preferred stock’s total recorded value is $240,000. In this case, if the preferred stock is issued at a value of $6 per share, total at $240,000, then:

- Preferred stock credit: $240,000

- Land debit: $240,000

Since the stock has a $100 par value, and the total preferred stock is valued at $240,000, the issue includes a premium. The preferred stock account is credited for the total par value of shares issued (40,000 * $100 = $4,000,000), but in practice, the preferred stock total recorded is only $240,000, which confirms the issuance at a premium.

Therefore, the proper journal entry, consistent with the provided data, is:

Final Journal Entry:

But this conflicts with the actual preference for recording preferred stock at $240,000, indicating the total preferred stock issued is $240,000, which aligns with the "Preferred stock" line in the balance sheet.

In conclusion, the transaction records the issuance of preferred stock at a total fair value of $240,000 in exchange for land:

Appropriate journal entry:

• Debit: Land $240,000
• Credit: Preferred Stock, $100 par value, 40,000 shares issued = $4,000,000
• Credit: Paid-in Capital in Excess of Par – Preferred = $-3,760,000

However, if the preferred stock is issued at the book value of $240,000, then the recording simplifies to:

Simplified journal entry:

The overall transaction reflects that the land has been acquired through the issuance of preferred stock, impacting both asset and equity accounts.

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