Question

Bramble Inc. issues 500 shares of $10 par value common stock and 100 shares of $100 par value preferred stock for a lump sum of $110,000. (a) Prepare the journal entry for the issuance when the market price of the common shares is $180 each and market price of the preferred is $225 each. (b) Prepare the journal entry for the issuance when only the market price of the common stock is known and it is $190 per share.

Answer 1

(A)

cash 110,000 debit

common stock 5,000 credit

additional paid-in CS 81,086 credit

preferred stock 10,000 credit

additional paid-in PS 13, 914 credit

(B)

cash 110,000 debit

common stock 5,000 credit

additional paid-in CS 90,000 credit

preferred stock 10,000 credit

additional paid-in PS 5,000 credit

Step-by-step explanation:

Market Value

500 x 180 = 90,000 0,7826 CS

100 x 225 = 25,000 0, 2174 Preferred

total 115,000

Issuance: 110,000

Preferred: 21.74% of 110,000 = 23,914

face value: 100 x100 10,000

additional paid-in 13,914

Common: 78.26% of 110,000 = 86,086

face value: 500 x 10 = 5,000

additional paid-in 81,086

If we can only determinate the common stock:

total issuance - common stock = preferred stock

110,000 - 190 x 500 = 110,000 - 95,000 = 15,000 preferred stock

additional paid-in CS: 110,000 - 5,000 = 105,000

additional paid-in PS: 15,000 - 10,000 = 5,000