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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Blue Corporation issues 200 “packages” of securities for $80 per package, or a total of $16,000. Each package includes 4 shares of $5 par common stock and one share of $30 par preferred stock. If the separate market values are $20 per share for the common stock and $70 per share for the preferred stock, what journal entry will Blue make to record this transaction?

To determine

Prepare the journal entry to record the packages issue of securities by Corporation B.

Explanation

Package issue of securities: When a corporation issues different kinds of securities in a package sale and allocates the proceeds among the securities based on the fair market value of respective securities. It includes common stock and preference stock.

Prepare the journal entry to record the packages issue of securities By Corporation B:

Account title and ExplanationPost Ref.

Debit

($)

Credit

($)

Cash (200packages×$80) $16,000 
    Common stock ($5×800shares)  $4,000
    Additional paid-in-capital (1)  $4,533
    Preferred  stock ($30×200shares)  $6,000
    Additional paid-in-capital (1)  $1,467
(To record the issuance of common stock)   

Table (1)

Explanation for the journal entry is as follows:

  • Cash is an asset account. Issuance of common stock for cash will increase the cash account. Thus, it is debited.
  • Common stock is component of the shareholders’ equity. Issuance of common stock wills increases the common stock account. Thus, it is credited.
  • Additional paid-in-capital is component of the shareholders’ equity

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