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Garb Inc. issues 5,000 shares of $100 par value preferred stock for cash at $130 per...

Garb Inc. issues 5,000 shares of $100 par value preferred stock for cash at $130 per share.

a. Journalize the issuance of the preferred stock.

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Answer #1

As per the question, Garb Inc. has issued 5,000 shares of $100 par value preferred stock for cash at $130 per share which means that the shares have been issued at a premium. To journalize the entry:-

Bank A/c Dr. $650,000

Redeemable Preference Share Capital Cr. $500,000

Share/Securities Premiums Cr $150,000

(being issue of 5,000 preference shares of $100 par value at a premium of $30 per share)

a.) As can be seen, the shares were issued at a premium. Hence, we pass the journal entry taking into account the total cash that will be received and hence Debit the bank account.

b.) Since the shares have been issued at a premium, we credit the Redeemable preference share capital account for the par value of the shares issued and also credit the share/securities premiums for the amount of premiums on the shares issued.

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