Question

Martinez Inc. issues 500 shares of $10 par value common stock and 100 shares of $100 par value preferred stock for a lump sum of $120,000.

(a) Prepare the journal entry for the issuance when the market price of the common shares is $164 each and market price of the preferred is $205 each.

(b) Prepare the journal entry for the issuance when only the market price of the common stock is known and it is $210 per share. (Round answers to 0 decimal places, e.g. $1,225. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

1. Journal Entry

No	Account Title and Explanation	Debit	Credit
1	Cash	$120,000
	Common Stock (500×$10)		$5,000
	Paid in capital in Excess of Par-Common Stock ($100,398 - $5,000)		$95,398
	Preferred Stock (100×$100)		$10,000
	Paid in Capital Excess of Par -Preferred ($19,602 -$10,000)		$9,602

Explanation;

Fair Value of Common (500 ×$210)	$105,000
Fair Value of Preferred (100×$205)	$20,500
	$125,500

Allocated to Common : 105,000/125,500 × $120,000 = $100,398

Allocated to Preferred : 20,500/125,500 × $120,000 = 19,602

Total = $120,000

b). Journal Entry

No	Account Title and Explanation	Debit	Credit
1	Cash	$120,000
	Common Stock (500×$10)		$5,000
	Paid in capital in Excess of Par- Common Stock ($105,000 - $5,000)		$100,000
	Preferred Stock (100×$100)		$10,000
	Paid in Capital Excess of Pad-Preferred Stock ($15,000 -$10,000)		$5,000

Explanation;  

Lump Sum Receipt	$120,000
Allocated to Common (500×$210)	$105,000
Bal ance Allocated to Preferred	$15,000