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Chapter 15: Question 4BE (page 811)

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.

Short Answer

Expert verified

The issuing value for common stock is $3,000 and for preferred stock is $5,000.

Step by step solution

01

Meaning of Common Stock

"Common stock" is a type of investment representing a corporation's ownership. The general public elects the board of directors, which has a role in business decisions. Over time, this type of stock ownership often delivers higher gains.

02

Preparing Journal Entry

S.no

Particular

Folio

Debit USD

$

Credit USD

$

(a)

Cash A/c Dr.

13,500

To preferred stock A/c (100$50) Cr.

5,000

To paid-in capital in excess Cr.

of par preferred stock A/c

3,100

To common stock (300$10) A/cCr.

3,000

To paid-in capital in excess of Cr.

par- common stock A/c

2,400

(being share issued)

(b)

FV ofcommon stock A/c (300$20) Dr.

6,000

FV of preferred A/c. (100$90) Dr.

9,000

To total FV A/c. Cr.

15,000

(Being share allotted)

03

Calculation for showing allocation of share

Allocation of shares for common stock:

AllocatedtoCommon=MarketValueofcommonsharesTotalvalueofshares脳Lumpsumvalue=$6,000$15,000脳$13,500=$5,400

Allocation of shares for preferred stock:

AllocatedtoPreferred=MarketValueofpreferredsharesTotalvalueofshares脳Lumpsumvalue=$9,000$15,000脳$13,500=$8,100

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