Chapter 15, Problem 5E

To determine

Issuance of shares: Common stock represents equity ownership in a corporation. Common stockholders bear a higher amount of risk of loss and are also entitled to higher benefits in the company’s profits and assets. Common stock can be issued at par or at premium or discount. A preferred stock is a special class of stock that possesses certain preference over the non common stock, example preference as to payment of dividends or as to assets in the event of liquidation of a company.

Common and preferred stocks are reported at par values in the stockholders’ equity section of the balance sheet. Any excess over the par value is reported as part of the paid-in capital.

To prepare: To prepare the journal entry for the issuance of shares.

Given information: Number of common stock: 500.

Par value: $10.

Number of preferred stock: 100.

Par value: $100.

Lump sum amount: $100,000.

Market price of common stock: $165.

Market price of preferred stock: $230.