Final answer:
To record the transaction, the entry would consist of a debit to Cash for $4,370,000 and a credit or credits to Preferred Stock for the par value of the stock and to Additional Paid-in Capital for the excess amount received over the par value of the stock.
Step-by-step explanation:
The entry to record the transaction will consist of a debit to Cash for $4,370,000 and a credit or credits to Preferred Stock for the par value of the stock, which is $100 per share, and to Additional Paid-in Capital for the excess amount received over the par value of the stock.
The journal entry would be:
- Debit: Cash $4,370,000
- Credit: Preferred Stock $3,800,000
- Credit: Additional Paid-in Capital (Plug)
Preferred Stock ($100 x 38,000 shares) = $3,800,000
Excess amount received = Total cash received - Par value of preferred stock = ($115 x 38,000 shares) - $3,800,000 = $4,370,000 - $3,800,000 = $570,000
The Additional Paid-in Capital would be credited for the amount of $570,000 to balance the entry.