Manning Company issued 10,000 shares of its $5 par value common stock having a fair value of $25 per share and 15,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $530,000. How much of the proceeds would be allocated to the common stock?

Question

Quizplus · Accepted Answer

The total fair value of the stocks is $25 x 10,000 + $20 x 15,000 = $550,000. To allocate the lump sum of $530,000, we first need to proportionally allocate the value of each stock:

Common stock: ($25/$45) x $550,000 = $305,556 
Preferred stock: ($20/$45) x $550,000 = $244,444

Therefore, the amount allocated to common stock is $305,556 - $55,556 (the par value of the common stock: $5 x 10,000 shares) = $250,000.

Manning Company Issued 10,000 Shares of Its $5 Par Value