On July 1,Riverwalk Corporation issued 2,000 shares of its $10 par common and 4,000 shares of its $10 par preferred stock for a lump sum of $80,000.At this date,Riverwalk's common stock was selling for $18 per share and the preferred stock for $13.50 per share.The amount of proceeds allocated to Riverwalk's preferred stock should be

Question

Quizplus · Accepted Answer

The lump sum received for 2,000 shares of common and 4,000 shares of preferred stock is $80,000. To find the allocation of proceeds for the preferred stock, we need to calculate the portion of the lump sum that corresponds to the fair value of the preferred stock.

The fair value of 4,000 shares of preferred stock is 4,000 x $13.50 = $54,000.

The fair value of 2,000 shares of common stock is 2,000 x $18 = $36,000.

The total fair value of both the preferred and common stock is $54,000 + $36,000 = $90,000.

To find the allocation of proceeds for the preferred stock, we need to calculate the proportion of the total lump sum that corresponds to the fair value of the preferred stock.

The proportion of the lump sum allocated to the preferred stock is $54,000/$90,000 x $80,000 = $48,000.

Therefore, the amount of proceeds allocated to Riverwalk's preferred stock should be $48,000.

On July 1,Riverwalk Corporation Issued 2,000 Shares of Its $10