Answer:
a.
Journal Entries
Dr. Cash ___________________$104,000
Cr. Common Stock ___________$5,000
Cr. Preferred stock ___________$10,000
Cr. Paid in capital Common Stock $78,200
Cr. Paid in capital Preferred stock $10,800
b.
Dr. Cash ___________________$104,000
Cr. Common Stock ___________$5,000
Cr. Preferred stock ___________$10,000
Cr. Paid in capital Common Stock $84,000
Cr. Paid in capital Preferred stock $5,000
Explanation:
a.
First, we need to calculate the fair value of each type of shares using the following formula
Fair value = Numbers of shares x Fair value per share
Fair Value of Common Share = 500 shares x $164 per share = $82,000
Fair value of preferred share = 100 shares x $205 per share = $20,500
Total value of shares = $82,000 + $20,500 = $102,500
Now allocate the Value of $104,000 bases on the fair value
Allocation to
Common stock = $104,000 x $82,000 / $102,500 = $83,200
Preferred stock = $104,000 x $20,500 / $102,500 = $20,800
Now calculate the par values
Par Values
Common stock = 500 shares x $10 = $5,000
Preferred stock = 100 shares x $100 = $10,000
Now calculate the additional paid-in capital
Additional paid-in capital
Common stock = $83,200 - $5,000 = $78,200
Preferred stock = $20,800 - $10,000 = $10,800
b,
Value of common stock = $178 per share x 500 shares = $89,000
Additional paid in capital
Common stock = $89,000 - $5,000 = $84,000
Preferred stock = $104,000 - $89,000 - $10,000 = $10,000
