Question

Exercise 15-05 Ayayai Inc. issues 500 shares of $10 par value common stock and 100 shares of $100 par value preferred stock for a lump sum of $115,000. (a) Prepare the journal entry for the issuance when the market price of the common shares is $172 each and market price of the preferred is $215 each. (b) Prepare the journal entry for the issuance when only the market price of the common stock is known and it is $200 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. "No Entry" for the account titles and enter o for the amounts.) Debit Credit No. Account Titles and Explanation (a) Cash 115000 Paid-in Capital in Excess o Common Stock Paid-in Capital in Excess o Preferred Stock (b) Cash Paid-in Capital in Excess o Common Stock Paid-in Capital in Excess o Preferred Stock

Answer 1

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	Account Titles and Explanation	Debit	Credit
a.	Cash	$ 1,15,000
	Paid - in capital in excess of par - Common stock		$     87,000
	Common stock		$       5,000
	Paid - in capital in excess of par - Preferred stock		$     13,000
	Preferred stock		$     10,000
b.	Cash	$ 1,15,000
	Paid - in capital in excess of par - Common stock		$     95,000
	Common stock		$       5,000
	Paid - in capital in excess of par - Preferred stock		$       5,000
	Preferred stock		$     10,000
	Workings:
a.	Total Lump sum amount = $115000
	Fair Value of:
	Common stock (500 X $172)	=	$     86,000
	Preferred stock (100 X $215)	=	$     21,500
	Total	=	$ 1,07,500
	Lump sum amount allocated to:
	Common stock [($86000/$107500) X $115000]	=	$     92,000
	Preferred stock [($21500/$107500) X $115000]	=	$     23,000
b.	Total Lump sum amount = $115000
	Fair Value of:
	Common stock (500 X $200)	=	$ 1,00,000
	Lump sum amount allocated to:
	Common stock	=	$ 1,00,000
	Preferred stock ($115000 - $100000)	=	$     15,000