Maybe Corporation has issued 4,000 shares of common stock and 500 shares of pref
ID: 2461630 • Letter: M
Question
Maybe Corporation has issued 4,000 shares of common stock and 500 shares of preferred stock for a lump sum of $80,000 cash.
A- Give the entry for the issuance assuming the par value of the common stock was $5 and the fair value $30, and the par value of the preferred stock was $40 and the fair value $50. (Each valuation is on a per share basis and there are ready markets for each stock
B- 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 $26 per share.
Explanation / Answer
The par value of common stock=5*4000=20,000
The par value of prefered stock=40*500=$20,000
Market value of common=30*4000=$120,000
Market value of preferred=50*500=25,000
total=120,000+25,000=$145,000
=(120,000/145,000)*80,000=66,206.9
=(25,000/145,000)*80,000=13,793.1
cash (db) 80,000
common stock (cr)20,0000
prefered stock (cr)20,000
Paid-in Capital in Excess of ParCommon (cr)(66,206.9-20000)=53,793.1
Paid-in Capital in Excess of ParPreferred (cr)(13,793.1-20000)=-11,206.9
B)fair market value of common=26*4000=104,000
cash (db) 80,000
common stock (cr)20,000
prefered stock (cr)20,000
Paid-in Capital in Excess of ParCommon (cr)(104,000-20000)=$94,000
Paid-in Capital in Excess of ParPreferred (cr)-54,000
I think the no of shares of common stock should not be $4000 as the solution is not feasible with it.