Question

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

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:

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

Allocation of shares for preferred stock:

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