Question

2. 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 $630,000.  The fair value of the common stock is $40 per share and the fair value of the preferred stock is $1200 per share.

1. 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.

Answer 1

		Journal entry in the books of Gunns Inc.
		Dr/Cr	Particulars	Debit $	Credit $
		Debit	Cash/Bank	630,000
		Credit	Common Stock		15,000
		Credit	6% Preferred Stock		25,000
		Credit	Paid in excess of par- Common Stock (Note:-1)		585,000
		Credit	Paid in excess of par- 6% Preferred Stock (Note:-2)		5,000
			(To record the issue of common stock face value $1 and 6% preferred stock $ 1000 per share at fair market value to a investor)
	Note:-1
	Cell Reference	Particulars	Details
	A	No of common stock	15,000
	B	Face Value of common stock	1
	C	Marker value of common stock	40
	D=C-B	Paid in excess of par- Common Stock per share	39
	E=D*A	Paid in excess of par- Common Stock	585,000
	Note:-2
	Cell Reference	Particulars	Details
	A	No of 6% Preferred stock	25
	B	Face Value of 6% Preferred stock	1,000
	C	Marker value of 6% Preferred stock	1,200
	D=C-B	Paid in excess of par- 6% Preferred stock per share	200
	E=D*A	Paid in excess of par- 6% Preferred stock	5,000