Question

Martinez Corporation’s charter authorized issuance of 91,000 shares of $10 par value common stock and 53,700 shares of $50 preferred stock. The following transactions involving the issuance of shares of stock were completed. Each transaction is independent of the others.

1. Issued a $10,500, 9% bond payable at par and gave as a bonus one share of preferred stock, which at that time was selling for $107 a share.

2. Issued 470 shares of common stock for equipment. The equipment had been appraised at $6,700; the seller’s book value was $6,800. The most recent market price of the common stock is $15 a share.

3. Issued 396 shares of common and 109 shares of preferred for a lump sum amounting to $9,800. The common had been selling at $13 and the preferred at $65.

4. Issued 180 shares of common and 53 shares of preferred for equipment. The common had a fair value of $15 per share; the equipment has a fair value of $7,000. Record the transactions listed above in journal entry form

Answer 1

-1-

Cash.......................................................................................       10,500

Discount on Bonds Payable.............................................            107

        Bonds Payable.............................................................                          10,500

        Preferred Stock............................................................                                 50

        Paid-in Capital in Excess of Par—Preferred

           Stock ($107 – $50)....................................................                                 57

-2-

Equipment (470 X $15).......................................................         7,050

        Common Stock............................................................                            4,700

        Paid-in Capital in Excess of Par—Common

           Stock...........................................................................                            2,350

        (Assuming the stock is regularly traded, the value

        of the stock would be used.) If the stock is not

        regularly traded, the equipment would be recorded

        at its estimated fair value.

-3-

Cash.......................................................................................         9,800

        Preferred Stock............................................................                            5,450

        Paid-in Capital in Excess of Par—Preferred

           Stock ($5,676 – $5,450)...........................................                               226

        Common Stock............................................................                            3,960

        Paid-in Capital in Excess of Par—Common

           Stock ($4,124 – $3,960)...........................................                               164

                Fair value of common (396 X $13)                        $ 5,148

                Fair value of preferred (109 X $65)                            7,085

                Aggregate                                                                  $12,233

                Allocated to common: (5148÷12233) X $9,800 =   $ 4,124

                Allocated to preferred: (7085÷12233)X $9,800 =         5,676

                Total allocated                                                              $ 9,800

-4-

Equipment.............................................................................         7,000

        Preferred Stock............................................................                            2,650

        Paid-in Capital in Excess of Par—Preferred

           Stock ($4,300 – $2,650)...........................................                            1,650

        Common Stock............................................................                            1,800

        Paid-in Capital in Excess of Par—Common

           Stock ($2,700 – $1,800)...........................................                               900

               Fair value of equipment                                               $7,000

               Less: Market value of common stock (180 X $15) 2,700

               Total value assigned to preferred stock                  $4,300