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### Intermediate Accounting (Kieso)

Book edition 16th
Author(s) Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Pages 1552 pages
ISBN 9781118743201

# Pistons Inc. recently hired a new accountant with extensive experience in accounting for partnerships. Because of the pressure of the new job, the accountant was unable to review what he had learned earlier about corporation accounting. During the first month, he made the following entries for the corporation’s capital stock.S.no.ParticularFolioDebit $Credit$May 2Cash 192,000 Capital Stock 192,000 (Issued 12,000 shares of $5 par value common stock at$16 per share) May 10Cash 600,000 Capital Stock 600,000 (Issued 10,000 shares of $30 par value preferred stock at$60 per share) May 15 Capital Stock 15,000 Cash 15,000 (Purchased 1,000 shares of common stock for the treasury at $15 per share) May 31Cash 8,500 Capital Stock 5,000 Gain on Sale of Stock 3,500 (Sold 500 shares of treasury stock at$17 per share) InstructionsOn the basis of the explanation for each entry, prepare the entries that should have been made for the capital stock transactions.

The total cumulative dividend is $240,000. The total paid-in capital in excess of par is$70,000.

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## Meaning of Capital stock

The shares of ownership issued by a corporation are capital stock. The sum received by the corporation when its shares of capital stock were issued is represented as paid-in capital on the balance sheet in the shareholders' equity section.

## Preparing the entries that should have been made for the capital transaction

(a) The Cumulative dividend is disclosed in a note to the stockholders’ equity section; it is not reported as a liability.

 S.no. Particular Folio Debit $Credit$ (b) Preferred stock A/c. 400,000 Common Stock A/c. 280,000 Paid-in Capital in excess of par common Stock A/c. 120,000 To record the issue of stock

(c)Paid-in capital

 Preferred stock, ($100 par, 8% 10,000 shares issued)$1,000,000 Paid-in Capital in excess of par (10,000*\$7) 70,000

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