Answered

Tom Yuppy, a wealthy investor, paid [tex]\$52,000[/tex] for 1,300 shares of [tex]\$10[/tex] par common stock issued to him by Leuig Corporation. A month later, Leuig Corporation issued an additional 2,600 shares of stock to Yuppy for [tex]\$40[/tex] per share.

Required:
Show the effect of the two stock issues on Leuig's books in a horizontal statements model. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). If an element was not affected by the event, leave the cell blank.



Answer :

GinnyAnswer
To analyze the effect of the two stock issues on Leuig Corporation's books, we will break down the transactions and determine the relevant elements for both initial and additional stock issues.

### Initial Stock Issue

#### Details:
- Shares Issued: 1,300
- Amount Paid by Investor: \[tex]$52,000 - Par Value per Share: \$[/tex]10
- Total Par Value: 1,300 shares * \[tex]$10 = \$[/tex]13,000
- Paid-in Capital in Excess of Par: \[tex]$52,000 (amount paid) - \$[/tex]13,000 (par value) = \[tex]$39,000 ### Additional Stock Issue #### Details: - Shares Issued: 2,600 - Amount Paid by Investor: \$[/tex]40 per share * 2,600 shares = \[tex]$104,000 - Par Value per Share: \$[/tex]10
- Total Par Value: 2,600 shares * \[tex]$10 = \$[/tex]26,000
- Paid-in Capital in Excess of Par: \[tex]$104,000 (amount paid) - \$[/tex]26,000 (par value) = \[tex]$78,000 ### Summary of Transactions: Let's outline the contributions to common stock and paid-in capital from both transactions. - Common Stock (initial): \$[/tex]13,000
- Paid-in Capital (initial): \[tex]$39,000 - Common Stock (additional): \$[/tex]26,000
- Paid-in Capital (additional): \[tex]$78,000 - Total Cash Received: \$[/tex]52,000 (initial) + \[tex]$104,000 (additional) = \$[/tex]156,000

Total amounts after both stock issues:

- Total Common Stock: \[tex]$13,000 (initial) + \$[/tex]26,000 (additional) = \[tex]$39,000 - Total Paid-in Capital: \$[/tex]39,000 (initial) + \[tex]$78,000 (additional) = \$[/tex]117,000

### Horizontal Statements Model
In the horizontal statements model, we organize the financial information as follows, and assign the cash flow activity as a Financing Activity (FA).

| Account | Dr. (Debit) | Cr. (Credit) | Cash Flow Activity |
|--------------------------------|:----------------:|:--------------:|:--------------------:|
| Common Stock (initial) | | \[tex]$13,000 | | | Paid-in Capital (initial) | | \$[/tex]39,000 | |
| Common Stock (additional) | | \[tex]$26,000 | | | Paid-in Capital (additional) | | \$[/tex]78,000 | |
| Total Cash Received | \[tex]$156,000 | | FA | | Total Common Stock | | \$[/tex]39,000 | |
| Total Paid-in Capital | | \$117,000 | |

### Explanation of Cash Flow Activity:
The inflow of cash from the issuance of shares represents funds raised from financing activities, hence we categorize the cash inflow under 'FA' for Financing Activity.

Following these calculations and summarizations accurately reflects the effect on Leuig Corporation's books for the two stock issuance events.

Other Questions