Question

Bonita Industries issues 6800 shares of its $5 par value common stock having a fair value of $30 per share and 9800 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $311000. The proceeds allocated to the common stock is

Answer 1

Answer:

$158,610

Explanation:

The computation of the proceeds allocated to the common stock is as follows:

The fair value of the common stock is

= 6,800 shares × $30 per share

= $204,000

And, the fair value of the preferred stock is

= 9,800 shares × $20 per share

= $196,000

Now the percentage of the preferred stock is

= ($204,000) ÷ ($204,000 + $196,000)

= 51%

The lumpsum amount is $311,000

So, the amount that allocated to the common stock is

= $311,000 × 51%

= $158,610