Question

• Gunns Inc. issues 15,000 shares of $1 par value common stock and 25 shares of $1,000 par value, 6% preferred stock to a private investor for $1,900. The fair value of the common stock is $50 per share and the fair value of the preferred stock is below

• Prepare the journal entry to record the transaction assuming that the fair market values (FMV) for both the common and preferred stock are known and shown below.

• Prepare the journal entry assuming that only the FMV of the common stock is known (amount above)

Answer 1

GUNNS INC JOURNAL
DATE	PARTICULARS			DEBIT($)	CREDIT($)
CASE 1	ISSUANCE OF COMMON STOCK
	CASH A/C				$7,50,000.00
	TO COMMON STOCK			$15,000.00
	TO ADDITIONAL PAID IN CAPITAL		$7,35,000.00
	[AMOUNT OF ADDITIONAL PAID IN CAPITAL :
	15000 SHARES * ($50 - $1) = $735000]
	ISSUANCE OF PREFERRED STOCK
	CASH A/C				$47,500.00
	TO 6% PREFERRED STOCK			$25,000.00
	TO ADDITIONAL PAID IN CAPITAL		$22,500.00
	[AMOUNT OF ADDITIONAL PAID IN CAPITAL :
	25 SHARES * ($1900 - $1000) = 22500
CASE 2	ISSUANCE OF COMMON STOCK
	CASH A/C				$7,50,000.00
	TO COMMON STOCK-NO PAR VALUE		$7,50,000.00
	ISSUANCE OF PREFERRED STOCK
	CASH A/C				$47,500.00
	TO 6% PREFERRED STOCK-NO PAR VALUE		$47,500.00
	[WHEN PAR VALUE OF STOCK IS NOT KNOWN THE JOURNAL ENTRY
	IS MADE BY DEBITING CASH AND CREDITING COMMON STOCK OR
	PREFERRED STOCK]