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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TELLER CORPORATION POST-CLOSING TRIAL BALANCE DECEMBER 31, 2017
	Dr.	Cr.
Accounts payable		\( 310,000
Accounts receivable	\) 480,000
Accumulated depreciation—building and equipment		185,000
Allowance for doubtful accounts		30,000
Bonds payable		700,000
Building and equipment	1,450,000
Cash	190,000
Dividends payable on preference shares—cash		4,000
Inventories	560,000
Land	400,000
Prepaid expenses	40,000
Retained earnings		201,000
Share capital—ordinary (\(1 par value)		200,000
Share capital—preference (\)50 par value)		500,000
Share premium—ordinary		1,000,000
Share premium—treasury		160,000
Treasury shares—ordinary at cost	170,000
Totals	\(3,290,000	\)3,290,000

	Ordinary	Preference
Authorized	600,000	60,000
Issued	200,000	10,000
Outstanding	190,000	10,000

Short Answer

Step by step solution

Meaning of Common Stock

Preparing Journal Entry

Calculation for showing allocation of share

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