Question

Maxville Company issues 250 shares of $40 par preferred stock and 1,000 shares of $10 par common stock in a “package” sale on December 31. Total proceeds received amount to $39,650.

Required:

Record the transaction for each independent assumption shown:

1.	The common stock has a current market value of $20 per share; the current market value of preferred stock is not known.
2.	The common stock and the preferred stock have a current market value per share of $22 and $59, respectively.

Answer 1

Transaction Credit Debit $ 39,650 Account title Cash Common stock (1,000 x $10) Paid in capital in excess of par-Common stock (1,000 x($20-10) Preferred stock (250 x $40) Paid in capital in excess of par-Preferred stock (bal. fig.) $ 10,000 $ 10,000 $ 10,000 $ 9,650 Transaction Credit Debit $ 39,650 Account title Cash Common stock (1,000 x $10) Paid in capital in excess of par-Common stock (23,736-10,000) Preferred stock (250 x $40) Paid in capital in excess of par-Preferred stock (15,914-10,000) $ 10,000 $ 13,736 $ 10,000 $5,914 Fair value: Common stock (1,000 x $22) = $22,000 Preferred stock (250 x $59) = $14,750 Total fair value of stock = $36,750 Allocation: Common stock = (22,000/36,750) < $39,650 = $23,736 Preferred stock = (14,750/36,750) < $39,650 = $15,914