Question

Larkspur Inc. issues 500 shares of $10 par value common stock and 100 shares of $100 par value preferred stock for a lump sum of $104,000.

(a)		Prepare the journal entry for the issuance when the market price of the common shares is $164 each and market price of the preferred is $205 each.
(b)		Prepare the journal entry for the issuance when only the market price of the common stock is known and it is $178 per share.

Answer 1

Answer
Requirement ‘a’
Accounts title	Debit	Credit
Cash	$     104,000
Common Stock		$       5,000
Paid in Capital in excess of Par - Common Stock		$     78,200
Preferred Stock		$     10,000
Paid in Capital in excess of Par - Preferred Stock		$     10,800
(To record Stock issued for cash)

--Working
	No. of shares	Market Price	Total	Percent of total
Common Stock	500	$          164	$82,000	80.00%
Preferred Stock	100	$          205	$20,500	20.00%
Total fair Market Value			$102,500	100.00%

		Common Stock	Preferred Stock
A	Total Lumpsum Issue Price	$104,000	$104,000
B	Allocation %	80%	20%
C = A x B	Total	$83,200	$20,800
D	No. of shares	500	100
E	Par Value	$10	$100
F = D x E	Capital Stock credited by	$5,000	$10,000
G = C - F	Paid in Capital credited by	$78,200	$10,800

Requirement ‘b’
Accounts title	Debit	Credit
Cash	$         104,000
Common Stock		$      5,000
Paid in Capital in excess of Par - Common Stock		$    84,000
Preferred Stock		$    10,000
Paid in Capital in excess of Par - Preferred Stock		$      5,000
( To Record Stock issued for cash)

--Working
A	Total Lumpsum	$104,000
	Common Stock:
B	Market price of Common Stock	$178
C	No. of common stock shares issued	500
D = B x C	Amount allocated to Common Stock	$89,000
E = C x $ 10 par	Common Stock account [$10 par]	$5,000
F = D - E	Paid in Capital credited by	$84,000
	Preferred Stock:
G = A - D	Remaining amount for Preferred Stock	$15,000
H	No. of preferred Stock issued	100
I = H x $ 100 par	Preferred Stock account [at $ 100 par]	$10,000
J = G - I	Paid in Capital credited by	$5,000