Question

Effect of no-par common and par preferred stock on the horizontal statements model LO 8-4 Mercury Corporation issued 8,000 shares of no-par common stock for $20 per share. Mercury also issued 1,100 shares of $65 par, 6 percent noncumulative preferred stock at $75 per share. Required: 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.

Answer 1

	Balance sheet			Income statement			Statement of cash flows
event	Assets =	Liabilities +	Shareholders equity	Revenue -	Expense	=Net Inc
issue of no par stock	$160,000	NA	$160,000	NA	NA	NA	160,000	FA
issue of preferred stock	$82,500	NA	82,500	NA	NA	NA	82,500	FA

amount of cash received from no par stock issue = 8,000*$20 =>$160,000.

from non cumulative preferred stock = 1,100*$75 =>$82,500.

Both of the events are classified as cash inflows from financing activities.