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. Prepare the journal entry to record the issuance of the stock.

The journal entries to record the issuance of the stock by Donahue Corporation are as follows:

January 1, 2019 Debit Cash $45,500

Credit 7% Preferred Stock $39,000

Credit Additional Paid-in Capital - Preferred $6,500

Debit Cash $1,050,000

Credit Common Stock $840

Credit Additional Paid-in Capital - Common $1,049,160

Data Analysis and Calculations:

Authorized share capital:

2,000 shares, 7% Preferred Stock at $30 par

125,000 shares, Common Stock at $0.01 par

January 1, 2019 Cash $45,500 7% Preferred Stock $39,000 Additional Paid-in Capital - Preferred $6,500 1,300 shares of $30 each at $35 per share.

Cash $1,050,000 Common Stock $840 Additional Paid-in Capital - Common $1,049,160

84,000 shares of $0.01 each at $12.50 per share

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Cash $5,937,500

  To Common stock (125,000 shares × $0.01) $1,250

  To Additional paid in capital in excess of par value - Common stock  (125,000 shares × $12.49) $1,561,250

  To Preferred stock (125,000 shares × $30) $3,750,000

  To Additional paid in capital in excess of par value - Preferred stock (125,000 shares × $5) $625,000

(Being the issuance of the common stock and the preferred stock is recorded)

Explanation:

The journal entry is shown below:

Cash $5,937,500

  To Common stock (125,000 shares × $0.01) $1,250

  To Additional paid in capital in excess of par value - Common stock  (125,000 shares × $12.49) $1,561,250

  To Preferred stock (125,000 shares × $30) $3,750,000

  To Additional paid in capital in excess of par value - Preferred stock (125,000 shares × $5) $625,000

(Being the issuance of the common stock and the preferred stock is recorded)

For recording this we debited the cash as it increased the assets and the equity is also credited so the preferred stock and the common stock could be credited along with the additional paid in capital in excess of par