Question

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

(a)		Prepare the journal entry for the issuance when the market price of the common shares is $165 each and market price of the preferred is $230 each.
(b)		Prepare the journal entry for the issuance when only the market price of the common stock is known and it is $170 per share.

Answer 1

(a)

Market value = (500 X $165) + (100 X $230) = $105,500

Common shares = ($100,000 / $105,500) X (500 X $165) = $78,199

Preferred stock = ($100,000 / $105,500) X (100 X $230) = $21,801

Paid in capital in excess of par:

Commom shares = $78,199 - ($10 X 500) = $73,199

Preferred shares = $21,801 - ($100 X 100) = $11,801

No.	Accounts	Debit	Credit
a.	Cash	$100,000	-
	Common stock	-	$5,000
	Preferred stock	-	$10,000
	Paid in capital in excess of par - Common stock	-	$73,199
	Paid in capital in excess of par - preferred stock	-	$11,801

(b)

Common stock = $170 X 500 = $85,000

Preferred stock = $100,000 - $85,000 = $15,000

Paid in capital in excess of par:

Commom shares = $85,000 - ($10 X 500) = $80,000

Preferred shares = $15,000 - ($100 X 100) = $5,000

No.	Accounts	Debit	Credit
b.	Cash	$1,00,000	-
	Common stock	-	$5,000
	Preferred stock	-	$10,000
	Paid in capital in excess of par - Common stock	-	$80,000
	Paid in capital in excess of par - preferred stock	-	$5,000