Question

Lumpsum sale of common stock with preferred stock FINCO Corporation issued 600 shares of $10 par...

Lumpsum sale of common stock with preferred stock

FINCO Corporation issued 600 shares of $10 par value common stock and 200 shares of $50 par value preferred stock for a lump sum of $27,000. Common stock has a market value of $20 per share, and preferred stock has a market value of $90 per share.

Required:

(a) Proportional method - Calculate the FMV of the common stocks and the preferred stocks and record the journal entry to record the sale.

(b) Incremental method - Assuming the same information as shown above except that common stock has a market value of $20 per share and the value of preferred stock is unknown, Calculate the FMV of the common stocks and the preferred stocks and record the journal entry to record the sale.

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Answer #1

a) Journal entry

No General Journal Debit Credit
a Cash 27000
Common Stock (600*10) 6000
Paid in capital in excess of Par-Common Stock (12000/30000*27000)-6000 4800
Preferred stock (200*50) 10000
Paid in capital in excess of par-Preferred stock (18000/30000*27000)-10000 6200

b) Journal entry

No General Journal Debit Credit
b Cash 27000
Common Stock (600*10) 6000
Paid in capital in excess of Par-Common Stock (600*10) 6000
Preferred stock (200*50) 10000
Paid in capital in excess of par-Preferred stock 5000
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