Wang Corporation issued 8, 000 shares of $50 par preferred stock at $74 a share.A stock warrant attached to each preferred share allows the holder to buy one share of $10 par common stock for $20.Right after issuance, the preferred stock sells ex-rights for $63 per share.The warrants began selling at $7 per warrant.The amount credited to Common Stock Warrants at issuance of the preferred stock is

Question

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The total amount received from issuing 8,000 preferred shares at $74 per share is:
$74 x 8,000 = $592,000

The par value of the preferred shares is:
$50 x 8,000 = $400,000

The excess of the issue price over par is:
$592,000 - $400,000 = $192,000

This amount of $192,000 is credited to the Preferred Stock account.

The common stock warrants accompanying the preferred shares have a value of:
$20 - $7 = $13

Thus, each preferred share comes with a warrant worth $13.

The total value of the warrants is:
$13 x 8,000 = $104,000

Since each warrant allows the holder to buy one share of $10 par common stock, the total number of shares that can be issued through the warrants is:
8,000 x 1 = 8,000

The par value of the common stock to be issued through the warrants is:
$10 x 8,000 = $80,000

The excess of the exercise price over par is:
$20 - $10 = $10
$10 x 8,000 = $80,000

The total amount of additional paid-in capital to be recognized is:
$80,000 - $104,000 = ($24,000)

The negative amount of $24,000 is credited to the Common Stock Warrants account.

Therefore, the amount credited to Common Stock Warrants at issuance of the preferred stock is $59,200 ($104,000 - $24,000).

Wang Corporation Issued 8, 000 Shares of $50 Par Preferred