Question

Mercury Corporation issued 10,000 shares of no-par common stock for $25 per share. Mercury also issued 4,800 shares of $30 par, 6 percent noncumulative preferred stock at $40 per share.

a. Record these events 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). Use NA to indicate that an element was not affected by the event.

b. Prepare journal entries to record these transactions.

Answer 1

a) Record event

	Assets		=	Liabilities		+	Stockholder's equity		Cash flow
Common Stock	Cash	250000					Common Stock	250000	FA
Preferred stock	Cash	192000					Preferred stock (4800*30)	144000	FA
							Paid in capital in excess of par value-Preferred stock	48000

Journal entries

Date	account and explanation	debit	credit
	Cash	250000
	Common Stock		250000
	(To record Common Stock)
	Cash	192000
	Preferred stock		144000
	Paid in capital in excess of par value-Preferred stock		48000
	(To record preferred stock)