Question

Pearl Inc. issues 500 shares of $10 par value common stock and 100 shares of $100 par value preferred stock for a lump sum of $121,000.

(a)		Prepare the journal entry for the issuance when the market price of the common shares is $164 each and market price of the preferred is $205 each.
(b)		Prepare the journal entry for the issuance when only the market price of the common stock is known and it is $212 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.

No.	Account Titles and Explanation	Debit	Credit
(a)	Cash	121,000
	Common Stock (500 shares * $10)		5,000
	Paid-in Capital in Excess of Par - Common Stock (96,800 - 5,000)		91,800
	Preferred Stock (100 shares * $100)		10,000
	Paid-in Capital in Excess of Par - Preferred Stock (24,200 - 10,000)		14,200
	(To record issuance at a lump sum)

Working Note:

Market value of common stock issued (500 shares * $164)	82,000
Market value of preferred stock issued (100 shares * $205)	20,500
Total	$102,500

Allocation to common stock = (82,000 / 102,500) * 121,000 = $96,800

Allocation to common stock = (20,500 / 102,500) * 121,000 = $24,200

Answer b.

No.	Account Titles and Explanation	Debit	Credit
	Cash	121,000
	Common Stock (500 shares * $10)		5,000
	Paid-in Capital in Excess of Par - Common Stock (106,000 - 5,000)		101,000
	Preferred Stock (100 shares * $100)		10,000
	Paid-in Capital in Excess of Par - Preferred Stock (15,000 - 10,000)		5,000
	(To record issuance at a lump sum)

Working Note:

Lump sum amount	121,000
Less : Allocated to common stock (500 shares * $212)	106,000
= Allocated to preferred stock	15,000