Question

Exercise 15-05

Waterway Inc. issues 500 shares of $10 par value common stock and 100 shares of $100 par value preferred stock for a lump sum of $114,000.

(a)		Prepare the journal entry for the issuance when the market price of the common shares is $176 each and market price of the preferred is $220 each.
(b)		Prepare the journal entry for the issuance when only the market price of the common stock is known and it is $198 per share.

(Round answers to 0 decimal places, e.g. $1,225. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No. Account Titles and Explanation Debit Credit (a) Cash Common Stock Paid-in Capital in Excess of Preferred Stock Paid-in Capital in Excess of (b) Cash Common Stock Paid-in Capital in Excess of Preferred Stock Paid-in Capital in Excess of

Answer 1

| A 1 a) Fair Value of Common (500 X $176) Fair Value of Preferred (100 X $220) $88,000 $22,000 $110,000 Allocated to Common: $88,000/$110,000 X $114,000 Allocated to Preferred: $22,000/$110,000 X $114,000 Total allocation $91,200 $22,800 $114,000 Date Credit ($) Debit ($) $114,000 $5,000 Paticulars Cash Common Stock (500 X $10) Paid-in Capital in Excess of Par- Common Stock ($91200 – $5,000) Preferred Stock (100 X $100) Paid-in Capital in Excess of Par—Preferred Stock ($22800 - $10,000) $86,200 $10,000 $12,800

Lump-sum receipt Allocated to common (500 X $198) Balance allocated to preferred $114,000 $99,000 $15,000 22 Date Credit ($) Debit ($) $114,000 $5,000 Common Stock ($99,000 – Particulars Cash Common Stock Paid-in Capital in Excess of Par— $5,000) Preferred Stock Paid-in Capital in Excess of Par— $10,000) $94,000 $10,000 Preferred Stock ($15,000 – $5,000