Question

Ravonette Corporation issued 300 shares of $10 par value common stock and 100 shares of $50 par value preferred stock for a lump sum of $13,500. The common stock has a market price of $20 per share, and the preferred stock has a market price of $90 per share.
Prepare the journal entry to record the issuance.

Answer 1

Answer:

Dr Cash                                          $13,500

Cr Preferred stock                                                           $5,000

Cr Common stock                                                            $3,000

Cr Paid in capital in excess of par-preferred stock        $3,100

Cr Paid in capital in excess of par-common stock         $2,400

Explanation:

The market price can be used to apportion the amount attributable to each type of share as shown below

                                        Market value                   cost

Preferred share$90*100  $9000                          $8,100 *

Common stock$20*300   $6000                         $5,400 **

Total                                    $15,000                    $13,500

*$9000/$15000*$13500

**$6000/$15000*$13,500

The par value of preferred stock is $50*100=$5000

The par value of common stock is $10*300=$3000

Paid in capital in excess of par-preferred stock $3100($8100-$5000)

Paid in capital in excess of par-common stock $2,400($5400-$3000)