Question

(5 points) On July 1, 2007, Cole Co. issued 9,000 shares of its $13 par common stock and 12,000 shares of its $22 par convertible preferred stock for a lump sum of $500,000. At this time Cole's common stock was selling for $28 per share and the convertible preferred stock for $25 per share. Record the journal entry for the transaction.

Answer 1

Solution:

Fair value of common shares issued = 9000*$28 = $252,000

Fair value of preferred stock issued = 12000 * $25 = $300,000

Total fair value of shares issued = $252,000 + $300,000 = $552,000

Lumpsum issue value = $500,000

Amount allocated to common stock = $500,000*$252,000 / $552,000 = $228,261

Amount allocated to preferred stock = $500,000*300,000 / $552,000 = $271,739

Journal Entries - Cole Co.
Date	Particulars	Debit	Credit
1-Jul-17	Cash Dr	$500,000.00
	To Common Stock		$117,000.00
	To Paid in capital in excess of par - Common Stock		$111,261.00
	To Preferred Stock		$264,000.00
	To Paid in capital in excess of par - Preferred Stock		$7,739.00
	(To record issue of preferred and common stock)