Question

Flounder Inc. issues 500 shares of $10 par value common stock and 100 shares of $100 par value preferred stock for a lump sum of $109,000.

(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 $188 per share.

Answer 1

$ $ $ 86,000 500*172 21,500 100*215 1,07,500 Fair market value of common Fair market value of preferred Total Allocation of amount : Common stock Preferred Stock $ $ 87,200 109000*86000/107500 21,800 109000*21500/107500 $ 1,09,000 a. Cash Common stock Paid in capital excess- common stock Preferred stock Paid in capital excess- Preferred stock SA A $ $ $ 5,000 500*10 82,200 87200-5000 10,000 100*100 11,800 21800-1000 $ b. Lump sum receipt Allocated to common Balance to preferred $ 1,09,000 94,000 500*188 15,000 $ $ 1,09,000 Cash Common stock Paid in capital excess- common stock Preferred stock Paid in capital excess- Preferred stock A A A A 5,000 500*10 89,000 94000-5000 10,000 100*100 5,000 15000-10000