Let's break down the question and solve it step by step. --- ### **Question Overview** **Current Attempt in Progress:** - Company issues 500 shares of $10 par value common stock and 100 shares of $10 par value preferred stock for a lump sum of $11,000. You are asked: **a.** Prepare the journal entry **if the issue was with the fair market price of common stock at $17.50 each and preferred stock at $19.80 each**. **b.** Prepare the journal entry **if the issue was with only the par value of common stock known and it is $16.98 per share**. --- ## **Step-by-Step Solution** ### **a. Lump-Sum Issue Using Fair Market Value** #### **Step 1: Calculate Total Fair Market Value** - Common stock: 500 shares × $17.50 = **$8,750** - Preferred stock: 100 shares × $19.80 = **$1,980** - **Total FMV** = $8,750 + $1,980 = **$10,730** #### **Step 2: Allocate Lump Sum Proportionately** Total cash received = **$11,000** - **Common Stock Allocation:** = ($8,750 / $10,730) × $11,000 = 0.8155 × $11,000 = **$8,971** - **Preferred Stock Allocation:** = ($1,980 / $10,730) × $11,000 = 0.1845 × $11,000 = **$2,029** #### **Step 3: Prepare Journal Entry** - **Common Stock:** 500 shares × $10 par value = $5,000 - **Preferred Stock:** 100 shares × $10 par value = $1,000 - **Paid-in Capital in Excess of Par—Common:** $8,971 - $5,000 = $3,971 - **Paid-in Capital in Excess of Par—Preferred:** $2,029 - $1,000 = $1,029 **Journal Entry:** | Account Title | Debit | Credit | |-------------------------------------------|--------|--------| | Cash | 11,000 | | | Common Stock (500 × $10) | | 5,000 | | Paid-in Capital in Excess of Par—Common | | 3,971 | | Preferred Stock (100 × $10) | | 1,000 | | Paid-in Capital in Excess of Par—Preferred | | 1,029 | --- ### **b. Lump-Sum Issue Using Only Par Value of Common Stock Known** **Given:** Common stock value per share: $16.98 #### **Step 1: Calculate Total Value** - Common stock: 500 shares × $16.98 = **$8,490** - **Cash received:** $11,000 - **Preferred Stock allocation:** $11,000 - $8,490 = **$2,510** #### **Step 2: Prepare Journal Entry** - **Common Stock:** 500 × $10 = $5,000 - **Paid-in Capital in Excess of Par—Common:** $8,490 - $5,000 = $3,490 - **Preferred Stock:** 100 × $10 = $1,000 - **Paid-in Capital in Excess of Par—Preferred:** $2,510 - $1,000 = $1,510 **Journal Entry:** | Account Title | Debit | Credit | |-------------------------------------------|--------|--------| | Cash | 11,000 | | | Common Stock (500 × $10) | | 5,000 | | Paid-in Capital in Excess of Par—Common | | 3,490 | | Preferred Stock (100 × $10) | | 1,000 | | Paid-in Capital in Excess of Par—Preferred | | 1,510 | --- ## **Final Summary** - **When issuing stock for a lump sum, the proceeds are allocated based on the relative fair market value of each class of stock.** - **If only one class’s value is known, allocate that value first, and the remainder to the other class.** - **Journal entries record the par value to the "Stock" accounts, and the excess to "Paid-in Capital in Excess of Par" accounts.** If you need the journal entries in a specific format or have follow-up questions, let me know!