Teacher Corporation obtained a charter at the start of 2014 that authorized 50,000 no par value common shares and 40,000, $ 1, no par value preferred shares. The corporation was organized by four individuals who “reserved” 51 percent of the common shares for themselves. The remaining shares were to be sold to other individuals at $ 50 per share on a cash basis. During 2014, the following selected transactions occurred:
a. Collected $ 25 per share cash from three of the organizers and received two adjoining lots of land from the fourth organizer. Issued 3,000 common shares to each of the four organizers and received title to the land.
b. Issued 6,000 common shares to an investor at $ 50 cash per share.
c. Issued 8,000 preferred shares at $ 25 cash per share.
d. At the end of 2014, the accounts reflected net earnings of $ 42,000.
Required:
1. Prepare the journal entries to record each of these transactions.
2. Write a brief memo to explain the basis that you used to determine the cost of the land.
3. Is it ethical to sell shares to outsiders at a higher price than the amount paid by the organizers?