Question

Supplemental Problem 15-2

Beekley Company issued 300 shares of $10 par common stock and 100 shares of $50 par preferred stock for a lump sum of $13,500. The common stock has a market price of $20 per share and the preferred stock has a market value of $90 per share.

1. Prepare the journal entry to record the issuance.

2. Prepare the journal entry to record the issuance assuming the preferred stock has no market price.

Answer 1

………………	Number of shares		Market price per share		Total market value	percentage	Percentage working
Common shares	300	x	$20	=	$6,000	40%	(6,000/15,000)*100
Preferred shares	100	x	$90	=	$9,000	60%	(9,000/15,000)*100
					$15,000	100%

Above is calculation of allocation percentage to common shares and preferred shares.

…….

Allocation of lump sum received to common shares and preferred shares

	Common stock	Preferred stock
Lump sum received	$13,500	$13,500
Allocation %	40%	60%
working	13,500 * 40%	13,500 * 60%
Allocated lump sum	$5,400	$8,100

Journal entry to record the issuance.

Date	Title and explanation	Debit($)	Credit($)
	Cash	13,500
	preferred stock(100 * $50)		5,000
	Paid in capital in excess of par value preferred stock($8,100 - $5,000)		3,100
	Common stock(300 * 10)		3,000
	Paid in capital in excess of par value common stock($5400 – $3,000)		2,400

Answer 2

………………	Number of shares		Market price per share		Total market value
Common shares	300	x	$20	=	$6,000
					$6,000

Since the preferred stock has no market price,$6,000 is allocated to common shares and remaining lump sum amount is allocated to preferred stock.

Lump sum received	$13,500
Less: common shares	$(6,000)
Preferred shares	$7,500

Prepare the journal entry to record the issuance assuming the preferred stock has no market price.

Date	Title and explanation	Debit($)	Credit($)
	Cash	13,500
	preferred stock(100 * $50)		5,000
	Paid in capital in excess of par value preferred stock($7,500 - $5,000)		2,500
	Common stock(300 * 10)		3,000
	Paid in capital in excess of par value common stock($6,000 – $3,000)		3,000

dear student,i tried to explain u clearly ,if u face any issue let me know..thank you.