two accounting questions

Exercise P15-4

 (Stock Transactions—Lump Sum) Seles Corporation’s charter authorized issuance of 100,000 shares of $10 par value common stock and 50,000 shares of $50 preferred stock. The following transactions involving the issuance of shares of stock were completed. Each transaction is independent of the others.

·         1.Issued a $10,000, 9% bond payable at par and gave as a bonus one share of preferred stock, which at that time was selling for $106 a share.

·         2.Issued 500 shares of common stock for equipment. The equipment had been appraised at $7,100; the seller’s book value was $6,200. The most recent market price of the common stock is $16 a share.

·         3.Issued 375 shares of common and 100 shares of preferred for a lump sum amounting to $10,800. The common had been selling at $14 and the preferred at $65.

·         4.Issued 200 shares of common and 50 shares of preferred for equipment. The common had a fair value of $16 per share; the equipment has a fair value of $6,500.

Instructions

Record the transactions listed above in journal entry form.

Exercise E21-2

(Lessee Computations and Entries; Capital Lease with Guaranteed Residual Value) Pat Delaney Company leases an automobile with a fair value of $8,725 from John Simon Motors, Inc., on the following terms:

·         1.Noncancelable term of 50 months.

·         2.Rental of $200 per month (at end of each month). (The present value at 1% per month is $7,840.)

·         3.Estimated residual value after 50 months is $1,180. (The present value at 1% per month is $715.) Delaney Company guarantees the residual value of $1,180.

·         4.Estimated economic life of the automobile is 60 months.

·         5.Delaney Company’s incremental borrowing rate is 12% a year (1% a month). Simon’s implicit rate is unknown.

Instructions

·         (a)What is the nature of this lease to Delaney Company?

·         (b)What is the present value of the minimum lease payments?

·         (c)Record the lease on Delaney Company’s books at the date of inception.

·         (d)Record the first month’s depreciation on Delaney Company’s books (assume straight-line).

·         (e)Record the first month’s lease payment.