Question

Mercury Corporation issued 3,500 shares of no-par common stock for $20 per share. Mercury also issued 3,200 shares of $50 par, 6 percent noncumulative preferred stock at $60 per share. Required a. Record these events in a horizontal statements model. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). Use NA to indicate that an element was not affected by the event.

Answer 1

Mercury Corporation's issuance of no-par common stock and preferred stock is recorded by increasing cash and equity accounts, signifying financing activities. Common stock issuance resulted in $70,000 cash increase while preferred stock generated $192,000 cash. Both actions reflect equity financing and are recorded as such in the horizontal statements model.

Step-by-step explanation:

The question requires us to record the issuance of no-par common stock and preferred stock by Mercury Corporation and classify the cash flows accordingly. The horizontal statements model involves increasing assets (cash) on the left side and increasing equity (common stock and preferred stock) on the right side, reflecting that the transactions are a financing activity (FA), not affecting operations or investing activities.

Issuance of common stock: Mercury Corporation issued 3,500 shares at $20 per share. The cash flow would be 3,500 shares x $20/share = $70,000. The common stock account would increase by this amount.

Issuance of preferred stock: Similarly, they issued 3,200 shares of preferred stock at $60 per share. The cash flow here would be 3,200 shares x $60/share = $192,000. The preferred stock account would increase by the par value, which is 3,200 shares x $50/share = $160,000, with the additional paid-in capital (the excess of the issue price over the par value) increasing by $32,000 (the difference between the cash received, $192,000, and the par value amount, $160,000).

Both of the above actions are classified as financing activities (FA), as they relate to company financing operations through equity.

Answer 2

Financing activities as all transaction related to stock of the company where they are issued in exchange of cash.

Assets = Equity

Cash 70,000 = Common Stock 3,500 + Additional 66,500

Cash 192,000 = preferred 160,000 + additional 32,000

Step-by-step explanation:

The cash received will be calcualted withe issance price

the common stock and prefferred with the par value ($1 for common and $50 for preferred) the additional paid-in will be the difference.

Calculations:

First issuancce

cash:

3,500 x $20 = 70,000

common stock 3,500 shares x $1 = 3,500

additional 70,000 - 3,500 = 66,500

Second issuancce

cash:

3,200 x $60 = 192,000

preferred stock 3,200 x $50 = 160,000

additional paid-in 192,000 - 160,000 = 32,000