Glavine Company issues 6,000 shares of its $5 par value common stock having a fair value of $25 per share and 9,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $297,000. The proceeds allocated to the common stock is

Question

Quizplus · Accepted Answer

First, calculate the total fair value of the shares being issued:
(6,000 common shares x $25 fair value per share) + (9,000 preferred shares x $20 fair value per share) = $150,000 + $180,000 = $330,000

Next, calculate the portion of the lump sum allocated to the common stock using the proportional method:
Common stock portion = (fair value of common stock / total fair value) x lump sum
Common stock portion = ($150,000 / $330,000) x $297,000 = $135,000

Therefore, the proceeds allocated to the common stock is $135,000.

Glavine Company Issues 6,000 Shares of Its $5 Par Value