Violet Corporation issues 1,200 shares of $150 par value preferred stock at a price of $200 per share on December 31. It attaches a warrant to each share of stock that allows the holder to purchase one share of $20 par common stock at $50 per share. Given that the portion of the proceeds attributable to thepreferred stocks total $230,303 and the portion attributable to the common stocks warrants total $9,697, what journal entry would Violet make to allocate the $240,000 ($200 1,200) issuance price?

The journal entry to record the preferred stock, additional paid in capital on preferred stock and the warrants would be as under:

Dr Cash Account $240,000

Cr Preferred Stock                  $180,000

Cr Additional Paid In Capital   $50,303

Cr Common Stock Warrants     $9,697

The journal entry recording of warrant value would be:

Dr Cash Account                      $60,000

Dr Common Stock Warrants     $9,697

Cr Common Stock                                  $24,000

Cr Additional Paid In Capital                 $45,697

Explanation:

The Preferred stock par value collection is calculated as under:

Preferred Stock = $150 Par value * 1,200 per share = $180,000

The additional paid in capital on preferred stock can be calculated by taking the difference between the amount received $230,303 and the par value of 1200 shares.

Additional Paid In Capital on Preferred Stock = $230,303 - $180,000

Additional Paid In Capital on Preferred Stock  = $50,303

The journal entry to record the preferred stock, additional paid in capital on preferred stock and the warrants would be as under:

Dr Cash Account $240,000

Cr Preferred Stock                  $180,000

Cr Additional Paid In Capital   $50,303

Cr Common Stock Warrants     $9,697

Now we will come to warrant's accounting treatment.

First of all, we will find common stock value which is as under:

Common stock = 1200 shares * $20 = $24,000

The additional Paid in Capital for common stock is as under:

Additional Paid in Capital for Common Stock = 1200 * $50 - $24,000 + 9,697 = $36,000

And the total cash received is $60,000 ($50 * 1200 shares) for warrants.

The journal entry recording of warrant value would be:

Dr Cash Account                      $60,000

Dr Common Stock Warrants     $9,697

Cr Common Stock                                  $24,000

Cr Additional Paid In Capital                 $45,697

in 2001, dell computer became the world’s largest personal computer vendor, continuing to

gain market share and post profits in an industry struggling with slumping sales and billions of

dollars in losses. dell sells 90% of its pcs directly to the final customer, largely bypassing the

reseller channel that accounts for most of the world’s pc sales. this direct customer relationship

is the key to dell’s business model, and provides distinct advantages over the indirect sales

model. dell’s direct relationship with the customer allows it to tailor its offerings to customer

needs, offer add-on products and services, and use the internet to offer a variety of customer

services. in addition, dell’s pcs are built to customers’ specifications upon receipt of an order,

giving dell additional advantages over indirect pc vendors who must try to forecast demand and

ship products based on those forecasts. dell’s direct sales and build-to-order model has achieved

superior performance in the pc industry in terms of inventory turnover, reduced overhead, cash

conversion, and return on investment (kraemer, et al., 2000).

explanation:

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