On July 1, 2017, Cee Corp.issued 1,000 of its no par common shares and 2,000 of its no par preferred shares for a lump sum of $100,000.At this date Cee's common shares were selling for $48 per share and the preferred shares for $36 per share.Using the relative fair value method, the amount of the proceeds allocated to the preferred shares account should be

Question

Quizplus · Accepted Answer

The relative fair value method requires allocating the lump sum amount based on the proportion of the fair value of each class of shares.

Total fair value of common shares = 1,000 x $48 = $48,000
Total fair value of preferred shares = 2,000 x $36 = $72,000
Total fair value of both classes of shares = $48,000 + $72,000 = $120,000

Proportion of fair value of preferred shares = $72,000 / $120,000 = 0.6

Therefore, the amount allocated to the preferred shares account would be 0.6 x $100,000 = $60,000. The correct answer is C.