Chapter 15: Question 4BE (page 811)

Ravonette Corporation issued 300 shares of $10 par value common stock and 100 shares of $50 par value preferred stock for a lump sum of $13,500. The common stock has a market price of $20 per share, and the preferred stock has a market price of $90 per share. Prepare the journal entry to record the issuance.

Short Answer

Expert verified

The issuing value for common stock is $3,000 and for preferred stock is $5,000.

Step by step solution

Meaning of Common Stock

"Common stock" is a type of investment representing a corporation's ownership. The general public elects the board of directors, which has a role in business decisions. Over time, this type of stock ownership often delivers higher gains.

Preparing Journal Entry

S.no	Particular	Folio	Debit USD $	Credit USD $
(a)	Cash A/c Dr.		13,500
	To preferred stock A/c (100$50) Cr.			5,000
	To paid-in capital in excess Cr. of par preferred stock A/c			3,100
	To common stock (300$10) A/cCr.			3,000
	To paid-in capital in excess of Cr. par- common stock A/c			2,400
	(being share issued)

(b)	FV ofcommon stock A/c (300$20) Dr.		6,000
	FV of preferred A/c. (100$90) Dr.		9,000
	To total FV A/c. Cr.			15,000
	(Being share allotted)

Calculation for showing allocation of share

Allocation of shares for common stock:

$\begin{array}{rcl} A l l o c a t e d t o C o m m o n & = & \frac{M a r k e t V a l u e o f c o m m o n s h a r e s}{T o t a l v a l u e o f s h a r e s} \times L u m p s u m v a l u e \\ = & \frac{$ 6, 000}{$ 15, 000} \times $ 13, 500 \\ = & $ 5, 400 \end{array}$

Allocation of shares for preferred stock:

$\begin{array}{rcl} A l l o c a t e d t o P r e f e r r e d & = & \frac{Market Value of p r e f e r r e d shares}{Total value of shares} \times L u m p s u m v a l u e \\ = & \frac{$ 9, 000}{$ 15, 000} \times $ 13, 500 \\ = & $ 8, 100 \end{array}$

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Short Answer

Step by step solution

Meaning of Common Stock

Preparing Journal Entry

Calculation for showing allocation of share

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