Exercise 15-5 Teal Inc. issues 500 shares of $10 par value common stock and 100

Question

Exercise 15-5

Teal Inc. issues 500 shares of $10 par value common stock and 100 shares of $100 par value preferred stock for a lump sum of $121,000.

(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 0 for the amounts.)

No.

Account Titles and Explanation

Debit

Credit

(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 $212 per share.

Explanation / Answer

Req a: Market value of Common Stock 82000 (500 shares @ 164) Market value of Preferred Stock 20500 (100 shares @205) Total Market value 102500 Allocation of Consideration: Common Stock (121000/102500*82000): 96800 Preferred Stock (121000/102500*20500): 24200 Journal entry: No. Accounts titles and explanation Debiit $ Credit $ a. Cash account Dr. 121000       Common Stock capital (500*10) 5000       Preferred Stock capital (100*100) 10000       Additional paid in capital-Common Stock 91800       Additional paid in capital-Prefferred Stock 14200 Req b: Total Consideration: 121000 Less: Market value of Common Stock (Treated its consideration) 106000 Consideration for the issue of 100 Preferred stock 15000 Journal entry: No. Accounts titles and explanation Debiit $ Credit $ b. Cash account Dr. 121000       Common Stock capital (500*10) 5000       Preferred Stock capital (100*100) 10000       Additional paid in capital-Common Stock 101000       Additional paid in capital-Prefferred Stock 5000

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