Question

Waterway Inc. issues 500 shares of $10 par value common stock and 100 shares of $100 par value preferred stock for a lump sum of $117,000.

(a)		Prepare the journal entry for the issuance when the market price of the common shares is $176 each and market price of the preferred is $220 each.
(b)		Prepare the journal entry for the issuance when only the market price of the common stock is known and it is $204 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. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.	Account Titles and Explanation	Debit	Credit
(a)	enter an account title for case A	enter a debit amount	enter a credit amount
	enter an account title for case A	enter a debit amount	enter a credit amount
	enter an account title for case A	enter a debit amount	enter a credit amount
	enter an account title for case A	enter a debit amount	enter a credit amount
	enter an account title for case A	enter a debit amount	enter a credit amount
(b)	enter an account title for case B	enter a debit amount	enter a credit amount
	enter an account title for case B	enter a debit amount	enter a credit amount
	enter an account title for case B	enter a debit amount	enter a credit amount
	enter an account title for case B	enter a debit amount	enter a credit amount
	enter an account title for case B	enter a debit amount	enter a credit amount

Answer 1

Answer (a) :

Workings : Allocation of lumpsum to common atock and preferred stock :-

Particularls	Amount	Allocation base	Total allocation
Common stock (500 × $176)	$88,000	80% (88,000/1,10,000)	$93,600 (1,17,000 × 80%)
Preferred stock (100 × $220)	$22,000	20% (22,000/1,10,000)	$23,400 (1,17,000 × 20%)
TOTAL	$1,10,000		$1,17,000

Journal entry for issue od stock at lumpsum :

Date	Account title	Debit	Credit
	Cash	$1,17,000
	Common stock (500 × $10)		$5,000
	Additional paid in capital - common stock ($93,600 - $5,000)		$88,600
	Preferred stock (100 × $100)		$10,000
	Additional paid in capital - preferred stock ($23,400 - $10,000)		$13,400

Answer (b) :

journal entry for the issuance when only the market price of the common stock is $204 per share :-

Date	Account title	Debit	Credit
	Cash	$1,17,000
	Common stock		$5,000
	Additional paid in capital - common stock {(500 × $204) - $5,000}		$97,000
	Preferred stock ( 100 × $100)		$10,000
	Additional paid in capital - preferred stock (balancing figure)		$5,000