Reference no: EM132683487

Problem - Stock transaction for corporate expansion

Picasso Optics produces medical lasers for use in hospitals. The accounts and their balances appear in the ledger of Picasso Optics on November 30 of the current year as follows:

Preferred 2% Stock, $80 par (150,000 shares authorized, 75,000 shares issued) $6,000,000

Paid-In Capital in Excess of Par-Preferred Stock 225,000

Common Stock, $100 par (500,000 shares authorized, 150,000 shares issued) 15,000,000

Paid-In Capital in Excess of Par-Common Stock 1,800,000

Retained Earnings 50,250,000

At the annual stockholders' meeting on December 10, the board of directors presented a plan for modernizing and expanding plant operations at a cost of approximately $15,500,000. The plan provided (a) that the corporation borrow $6,000,000, (b) that 45,000 shares of the unissued preferred stock be issued through an underwriter, and (c) that a building, valued at $5,000,000, and the land on which it is located, valued at $487,500, be acquired in accordance with preliminary negotiations by the issuance of 52,500 shares of common stock. The plan was approved by the stockholders and accomplished by the following transactions:

Jan. 12. Borrowed $6,000,000 from Livingston National Bank, giving a 5% mortgage note.

Jan. 18. Issued 45,000 shares of preferred stock, receiving $85 per share in cash.

Jan. 25. Issued 52,500 shares of common stock in exchange for land and a building, according to the plan.

No other transactions occurred during January.

Instructions - Journalize the entries to record the foregoing transactions.