Question

Exercise 15-5

Ivanhoe Inc. issues 500 shares of $10 par value common stock and 100 shares of $100 par value preferred stock for a lump sum of $122,000.

(a)		Prepare the journal entry for the issuance when the market price of the common shares is $180 each and market price of the preferred is $225 each.
(b)		Prepare the journal entry for the issuance when only the market price of the common stock is known and it is $214 per share.

(Round answers to 0 decimal places, e.g. $1,225. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.	Account Titles and Explanation	Debit	Credit
(a)
(b)

Answer 1

Solution:

a.)

First we calculate, allocation of common stock shares and preferred stock shares:

Fair market value of common (500 × $180)	$90,000
Fair market value of preferred (100 × $225)	$22,500
Total	$112,500

Allocated to common ($90,000 /$112,500) ×$122,000	$97,600
Allocated to preferred ($22,500 /$112,500) ×$122,000	$24,400
Total	$122,000

Journal Entry:

No.	Account Title and Explaination	Debit	Credit
1.	Cash	$122,000
	Common stock (500 × $10)		$5,000
	Paid in Capital in Excess of par common ($97,600 - $5,000)		$92,600
	Preferred stock (100 × $100)		$10,000
	Paid in Capital in Excess of par preferred ($24,400 - $10,000)		$14,400
	(To record for the issuance when the FMV of common shares and FMV of preferred shares)

b.)

Lum - sum receipt	$122,000
Allocated to common (500 ×$214)	$107,000
Balance allocated to preferred	$15,000

Journal Entry:

No.	Account Title and Explaination	Debit	Credit
1.	Cash	$122,000
	Common stock (500 ×$10)		$5,000
	Paid in Capital in Excess of par common stock ($107,000 - $5,000)		$102,000
	Preferred stock (100 × $100)		$10,000
	Paid in Capital in Excess of par preferred stock ($15,000 - $10,000)		$5,000
	(To record for the issuance when only the FMV of common shares)