Question

Oriole Inc. issues 500 shares of $10 par value common stock and 100 shares of $100 par value preferred stock for a lump sum of $108,000.

(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 $186 per share.

Answer 1

a) Calculation:

Fair Value of Common (500 X $164)	$82,000
Fair Value of Preferred (100 X $205)	$20,500
	$102,500

Allocated to Common: $82,000/$102,500 X $108,000	$86,400
Allocated to Preferred: $20,500/$102,500 X $108,000	$21,600
Total allocation	$112,000

Journal Entries:

Cash	$108,000
Common Stock (500 X $10)		$5,000
Paid-in Capital in Excess of Par—    Common Stock ($86,400 – $5,000)		$81,400
Preferred Stock (100 X $100)		$10,000
Paid-in Capital in Excess of Par—Preferred Stock ($21,600 – $10,000)		$11,600

b)

Lump-sum receipt	$108,000
Allocated to common (500 X $186)	$97,000
Balance allocated to preferred	$11,000

Cash	$108,000
Common Stock		$5,000
Paid-in Capital in Excess of Par—    Common Stock ($97,000 – $5,000)		$93,000
Preferred Stock		$10,000
Paid-in Capital in Excess of Par—    Preferred Stock ($11,000 – $10,000)		$1,000