Question

Dedicared Fun Corporation issued 2,000 shares of common stock and 400 shares of preferred stock for a lump sum of $72,000 cash.

1. Give the entry for the issuance assuming the par value of the common stock was $5 and the fair value $30, and the par value of the preferred stock was $40 and the fair value $50. (Each valuation is on a per share basis and there are ready markets for each stock.)
   
   
   
   
   
   
   
2. Give the entry for the issuance assuming the preferred stock has no ready market and the common stock has a fair value of $23 per share. Par values are the same as in part 1.

Answer 1

Fair value of Common Stock	60000	=2000*30
Fair value of Preferred Stock	20000	=400*50
Total fair value	80000
Value allocated to Common Stock	54000	=72000*60000/80000
Value allocated to Preferred Stock	18000	=72000*20000/80000
a
General Journal	Debit	Credit
Cash	72000
Common Stock		10000	=2000*5
Paid-in Capital in Excess of Par—Common Stock		44000	=54000-10000
Preferred Stock		16000	=400*40
Paid-in Capital in Excess of Par—Preferred Stock		2000	=18000-16000
b
General Journal	Debit	Credit
Cash	72000
Common Stock		10000	=2000*5
Paid-in Capital in Excess of Par—Common Stock		36000	=2000*(23-5)
Preferred Stock		16000	=400*40
Paid-in Capital in Excess of Par—Preferred Stock		10000