Question

A corporation is authorized by its corporate charter to issue 10,000 shares of preferred stock with a 7% dividend rate and a par value of $3 per share, and 25,000 shares of common stock with a par value of $1 per share. On January 15, 2015, 1,000 shares of preferred stock were issued for $7 per share along with 10,000 shares of common stock for $5.50 per share.

How much would each account increase by for the issuance of the stock described above?

Common stock Issuance

Cash =

Common Stock =

Common Stock - Additional Paid in Capital =

Preffered Stock Issuance

Cash =

Preffered Stock =

Preffered Stock - Additional Paid in Capital =

PLEASE SHOW WORK!

Answer 1

Common Stock:

Information Given:

Par value of each common stock = $1.00

Issued = 10,000 shares of Common Stock

Issue price = $5.50 per share

So, Common Stock-Additional Paid in Capital per share = Issue price of each share – Par value of each share

= $5.50 - $1.00

= $4.50 per share

Each account would increase by,

Cash = 10,000 shares × $5.50 = $55,000

Common Stock = 10,000 shares × $1 = $10,000

Common Stock-Additional Paid in Capital = 10,000 shares × $4.50 = $45,000

Preferred Stock:

Information Given:

Par value of each preferred stock = $1.00

Issued = 1,000 shares of Preferred Stock

Issue price = $7 per share

So, Preferred Stock-Additional Paid in Capital per share = Issue price of each share – Par value of each share

= $7 - $3 = $4 per share

Each account would increase by,

Cash = 1,000 shares × $7 = $7,000

Common Stock = 1,000 shares × $3.00 = $3,000

Common Stock-Additional Paid in Capital = 1,000 shares × $4 = $4,000

Note: Additional paid in capital refers to the amount of money that a company’s stockholders pay for stocks in excess of the par value of the stocks.