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Cornerstones of Financial Accounti...
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Cornerstones of Financial Accounti...
Recording the Sale of Common and Preferred Stock
Donahue Corporation is authorized by its charter from the State of Illinois to issue 2,000 shares of 7% preferred stock with a par value of $30 per share and 125,000 shares of common stock with a par value of $0.01 per share. On January 1, 2019, Donahue issues 1,300 shares of preferred stock at $35 per share and 84,000 shares of common stock at $12.50 per share.
Required:
Prepare the journal entry to record the issuance of the stock.
Concept introduction:
Stocks (Common Stock and Preferred Stock):
These are two types of the share capital of a company. Common Stock represents the Common shares issued to the shareholders and preferred stock represents the preference shares issued. Preference shares are given preference in payment of dividends and repayment of capital. Common shareholders get the inbuilt right to vote in decisions of the company and preference shareholders generally do not get this right but they may get voting rights with special provisions.
To prepare:
The journal entry to record the issuance of the stock.
The journal entry to record the issuance of the stock is explained as follows:
| Journal Entries | ||||
| Date | Account Titles | Debit | Credit | |
| Jan. 1, 2019 | Cash | $ 1,087,940 | ||
| Common Stock (84,000 Shares @ $0... | ||||
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