Question

Problem 15-4 Flounder Corporation’s charter authorized issuance of 97,000 shares of $10 par value common stock and 46,800 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, 10% bond payable at par and gave as a bonus one share of preferred stock, which at that time was selling for $99 a share.

2. Issued 450 shares of common stock for equipment. The equipment had been appraised at $6,600; the seller’s book value was $6,800. The most recent market price of the common stock is $16 a share.

3. Issued 379 shares of common and 101 shares of preferred for a lump sum amounting to $10,900. The common had been selling at $14 and the preferred at $71.

4. Issued 190 shares of common and 48 shares of preferred for equipment. The common had a fair value of $16 per share; the equipment has a fair value of $6,700.

Answer 1

Solution:

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

Discount on Bonds Payable..................................................................... 99

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

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

Paid-in Capital in Excess of Par—Preferred Stock ($99 – $50)...............49

2.

Machinery (450 X $16)...................................................... 7,200

Common Stock..................................................................................4,500

Paid-in Capital in Excess of Par—Common Stock.............................2,700

3.

Cash ...................................................................10,900

Preferred Stock............................................................................................. 5,050

Paid-in Capital in Excess of Par—Preferred Stock ($6,265 – $5,050)........... 1,215

Common Stock.............................................................................................. 3,790

Fair market value of common (379 X $14) $ 5,306

Fair market value of preferred (101 X $71) 7,171

Aggregate $12,477

Allocated to common: $5,306/$12,477 X $10,900 = $ 4,635

Allocated to preferred: $7,171/$12,477 X $10,900 = 6,265

Total allocated $10,900

4.

Furniture and Fixtures................................................................ 6,700

Preferred Stock.................................................................................................. 2,400

Paid-in Capital in Excess of Par—Preferred Stock ($3,660 – $2,400)................1,260

Common Stock ................................................................................................. 1,900

Paid-in Capital in Excess of Par—Common Stock ($3,040 – $1,900)............... 1,140

Fair value of furniture and equipment $6,700

Less: Market value of common stock (190 X $16) 3,040

Total value assigned to preferred stock $3,660

Paid-in Capital in Excess of Par—Common Stock ($4,635 – $3,790)........... 845