Wally, Inc. issued 500 shares of $10 par preferred stock at $83 a share. Each share had a warrant attached that allowed the holder to purchase one share of $5 par common stock for $15. Soon after the preferred stock was issued, the preferred stock was selling ex-rights for $64 a share, and the warrants were selling for $16 each. The entry to record the issuance of the preferred stock would include a

Question

Quizplus · Accepted Answer

The entry to record the issuance of the preferred stock at $83 a share for 500 shares would include a credit to Additional Paid-in Capital on Preferred Stock for the amount received in excess of the par value. The calculation is (500 shares * $83) - (500 shares * $10 par) = $41,500 - $5,000 = $36,500. However, since the warrants are attached and have a value, we need to account for their value separately. Given the error in the provided choices, the correct approach involves recognizing the proceeds in excess of par but the specific allocation to Additional Paid-in Capital on Preferred Stock is not accurately reflected in the choices provided.