On 2009 May 1, Farmington Company received a charter that authorized it to issue:
•4,000 shares of no-par preferred stock to which a stated value of USD 12 per share is assigned. The stock is entitled to a cumulative dividend of USD 9.60, convertible into two shares of common stock, callable at USD 208, and entitled to USD 200 per share in liquidation.
•1,500 shares of USD 400 par value, USD 20 cumulative preferred stock, which is callable at USD 420 and entitled to USD 412 in liquidation.
•60,000 shares of no-par common stock to which a stated value of USD 40 is assigned.
May 1 All of the USD 9.60 cumulative preferred was issued at USD 204 per share, cash.
2 All of the USD 20 cumulative preferred was exchanged for merchandise inventory, land, and buildings valued at USD 128,000, USD 160,000, and USD 425,000, respectively.
3 Cash of USD 15,000 was paid to reimburse promoters for costs incurred for accounting, legal, and printing services. In addition, 1,000 shares of common stock were issued to the promoters for their services. The value of all of the services (including those paid in cash) was USD 55,000.
a. Prepare journal entries for these transactions.
b. Assume that retained earnings were USD 200,000. Prepare the stockholders” equity section of the 2009 May 31, balance sheet.