Question

Windsor Inc. issues 500 shares of $10 par value common stock and 100 shares of $100 par value preferred stock for a lump sum of $107,000. (a) Prepare the journal entry for the issuance when the market price of the common shares is $164 each and market price of the preferred is $205 each. (b) Prepare the journal entry for the issuance when only the market price of the common stock is known and it is $184 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 for the amounts.) No. Account Titles and Explanation Debit Credit (a)

Answer 1

Answer
a)
Fair value of common(500 * 164)	$ 82,000
Fair value of Preferred(100 * 205)	$ 20,500
	$102,500
Allocated to common$ 82,000 / $102,500 * 107,000	$ 85,600
Allocated to preferred$$20500 / $102500 * 107,000	$ 21,400
	$107,000
Explanation	Debit	Credit
Cash	$107,000
Common stock(500 * 10)		$         5,000
Paid in capital excess of par common stock($85,600 - $5,000)		$       80,600
Preferred stock(100 * 100)		$       10,000
paid in capital excess of par preferred stock(21400- $10,000)		$       11,400

b)
Lump sum receipt	$107,000
Allocated to common (500 *184)	$ 92,000
Balance allocated to preferred	$ 15,000
Explanation	Debit	Credit
Cash	$107,000
Common stock(500 * 10)		$         5,000
Paid in capital excess of par common stock($92,000 - $5,000)		$       87,000
Preferred stock(100 * $100)		$       10,000
Paid in capital excess of par preferred stock($15,000 - $10,000)		$         5,000
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