Reference no: EM131250410

Stock transactions for corporate expansion

Vaga Optics produces medical lasers for use in hospitals. The accounts and their balances appear in the ledger of Vaga Optics on December 31 of the current year as follows:

Preferred 2% Stock, $120 par (50,000 shares authorized, 25,000 shares issued)           $3,000,000

Paid-In Capital in Excess of Par—Preferred Stock                                                       $400,000

Common Stock, $75 par (500,000 shares authorized, 300,000 shares issued)               $22,500,000

Paid-In Capital in Excess of Par—Common Stock                                                      $540,000

Retained Earnings                                                                                                   $55,000,000

At the annual stockholders’ meeting on January 31, the board of directors presented a plan for modernizing and expanding plant operations at a cost of approximately $9,500,000. The plan provided (a) that the corporation borrow $4,500,000, (b) that 20,000 shares of the unissued preferred stock be issued through an underwriter, and (c) that a building, valued at $1,200,000, and the land on which it is located, valued at $900,000, be acquired in accordance with preliminary negotiations by the issuance of 27,400 shares of common stock. The plan was approved by the stockholders and accomplished by the following transactions:

Mar. 8. Borrowed $4,500,000 from Conrad National Bank, giving a 6% mortgage note.

        13. Issued 20,000 shares of preferred stock, receiving $130 per share in cash.

       26. Issued 27,400 shares of common stock in exchange for land and a building, according to the plan.

No other transactions occurred during March.

Instructions

Illustrate the effects on the accounts and financial statements of each of the preceding transactions.