Question

The Daily Bugle has issued 3,000 shares of common stock and 1,500 shares of preferred stock...

The Daily Bugle has issued 3,000 shares of common stock and 1,500 shares of preferred stock for a lump sum of $180,000 cash.

Instructions (show all of your work)

(a) Give the entry for the issuance assuming the par value of the common stock was $10 and the fair value $25, and the par value of the preferred stock was $25 and the fair value $100. (Each valuation is on a per share basis and there are ready markets for each stock.)

(b) Give the entry for the issuance assuming the same facts as (a) above except the preferred stock has no ready market and the common stock has a fair value of $32 per share.

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Answer #1

Market value of Common Stock = 3000*25 = 75000

Market value of preferred stock = 1500*100 = 150000

No General journal Debit Credit
a Cash 180000
Common Stock (3000*10) 30000
Paid in capital in excess of par-Common Stock (180000*75/225)-30000 30000
Preferred stock (1500*25) 37500
Paid in capital in excess of par-Preferred stock 82500
No General journal Debit Credit
b Cash 180000
Common Stock (3000*10) 30000
Paid in capital in excess of par-Common Stock (3000*22) 66000
Preferred stock (1500*25) 37500
Paid in capital in excess of par-Preferred stock 46500
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