Question

Brief Exercise 10-40 (Algorithmic) Recording the sale of Common and Preferred Stock At the end of its first year of operations, Mulligan Corporation has outstanding shares of 152,000 common stock and 25,000 preferred stock. The State of Ohio authorized Mulligan to issue 26,000 shares of 6% preferred stock with a par value of $35 per share and 153,000 shares of common stock with a par value of $7 per share. Any preferred stock sold during the year had a selling price of $45.50 per share. Mulligan's common stock was issued at $18. Required: Prepare the journal entry to record the issuance of stock during the year. Preferred Stock x 1,050,000 Cash x 2,736,000 X Additional Paid-In Capital-Preferred Stock 1,686,000 X Cashx 1,137,500 x Additional Paid-In Capital-Common Stock (Record sale of preferred and common stock)

Answer 1

Journal

	Cash	3,873,500
	Preferred stock		875,000
	Additional paid in capital - Preferred stock		262,500
	Common stock		1,064,000
	Additional paid in capital - Common stock		1,672,000

Cash will be debited by = (Number of Preferred shares issued x Issue price per Preferred share) + (Number of Common shares issued x Issue price per Common share)

= 25,000 x 45.5 + 152,000 x 18

= 1,137,500 + 2,736,000

= $3,873,500

Preferred stock will be credited by = Number of Preferred shares issued x Par value per Preferred share

= 25,000 x 35

= $875,000

Additional paid in capital - Preferred stock will be credited by = Number of Preferred shares issued x (Issue price per Preferred share - Par value per Preferred share)

= 25,000 x (45.5 - 35)

= $262,500

Common stock will be credited by = Number of Common shares issued x Par value per Common share

= 152,000 x 7

= $1,064,000

Additional paid in capital - Common stock will be credited by = Number of Common shares issued x (Issue price per Common share - Par value per Common share)

= 152,000 x (18 - 7)

= $1,672,000

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