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.

Dr Cash $13,500

Cr Preferred stock $5,000

Cr Common stock $3,000

Cr Paid in capital in excess of par-preferred stock $3,100

Cr Paid in capital in excess of par-common stock $2,400

Explanation:

The market price can be used to apportion the amount attributable to each type of share as shown below

Market value cost

Preferred share$90*100 $9000 $8,100 *

Common stock$20*300 $6000 $5,400 * *

Total $15,000 $13,500

*$9000/$15000*$13500

**$6000/$15000*$13,500

The par value of preferred stock is $50*100=$5000

The par value of common stock is $10*300=$3000

Paid in capital in excess of par-preferred stock $3100 ($8100-$5000)

Paid in capital in excess of par-common stock $2,400 ($5400-$3000)