Nichols Corporation has issued 3,000 shares of common stock and 800 shares of pr

Question

Nichols Corporation has issued 3,000 shares of common stock and 800 shares of preferred stock for a lump sum of $164,000 cash.

1) Give the entry for the issuance assuming the par value of the common stock was $10 and the fair value $60, and the par value of the preferred stock was $60 and the fair value $80. (Each valuation is on a per share basis and there are ready markets for each stock.)

2) Give the entry for the issuance assuming the same facts as (a) above except the preferred stock has no ready market and the common stock has a fair value of $72 per share.

Explanation / Answer

(1) Cash debit                164000        

Credit common stock                            30000

credit preffered stock                             48000

credit additional paid in capital               86000

(issuance of common stock and preffered stock for a lump sum 164000 cash)

2- cash debit                         164000

   credit common stock                              30000

   credit preffered stock                               48000

   crdit additional paid in capital                    86000

(there is no change in journal entries and amount debit and credit because entries for issuance of common and preffered stock is generally recoreded on book value or at par value

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