Question

On July 1, 2018, Jack Company issued for $8400000 a total of 80,000 shares of $100 par value, 7% noncumulative preferred stock along with one detachable warrant for each share issued. Each share warrant contains right to purchase one share of Jack 10 par value common stock for $15 per share. The stock without the warrants would normally sell for 8200,000. The market price of the rights on July 1 2018 was 2.50 per right. On October 31, 2018 when the market price of the common stock was 19 per share and the market value of the rights was 3.00 per right. 32,000 rights were exercised.

A) Prepare entry to record the issuance on 7/1/2018.

B)As a result of the exercise of the 32,000 rights and the issuance of the related common stock, what journal entry would Jack make?

Answer 1

a)
Date	Accounts Titles	Debit $	Credit $
July 1 2018	cash	8400000
	Paid in capital in excess of par- PS		200000
	Preferred Stock		8000000
	Paid in capital Stock warrants		200000		(80000*2.50)
	(being issue of preferred stock with detachable warrant)
b)
Oct 31 2018	Cash	480000			(32000*$15)
	Paid in capital Stock warrants	80000			(32000*2.50)
	Common Stock		320000		(32000*$10)
	Paid in capital in excess of par-CS		240000
	(being exercise of 32000 rights and CS issued @ $15 per share)