A corporation issues 50 "packages" of securities for $154 per package. Each package consists of three shares of $5 par common stock and one share of $50 par preferred stock. If the market values of $40 per share for the common stock and $100 per share for preferred stock are known, the journal entry to record the sale would assign a total value to the preferred stock of
A) $3,500.
B) $4,200.
C) $5,775.
D) $6,000.

Question

Quizplus · Accepted Answer

The total value assigned to the preferred stock can be calculated by first determining the total sales value of the packages, which is 50 packages * $154/package = $7,700. Given the market values, the value of the common stock per package is 3 shares * $40/share = $120. For 50 packages, the total market value of the common stock is 50 packages * $120/package = $6,000. Since the total sales value is $7,700 and the value assigned to the common stock is $6,000, the remainder, which is assigned to the preferred stock, is $7,700 - $6,000 = $1,700. However, this calculation seems to have misunderstood the question's requirement for the total value assigned to the preferred stock in the journal entry, which should be based on the par value rather than the market value or the calculation above. Given each package includes one share of $50 par preferred stock, and there are 50 packages, the total value assigned to the preferred stock is 50 shares * $50/share = $2,500. This indicates a mistake in the initial calculation and interpretation of the question, as none of the provided options correctly matches this corrected calculation. Re-evaluating the approach to correctly address the question's requirement:Each package includes one share of $50 par preferred stock, and there are 50 packages. Therefore, the total par value assigned to the preferred stock is indeed 50 * $50 = $2,500, which does not match any of the options provided, indicating a misunderstanding in the explanation. The correct approach to find the value assigned to the preferred stock in the journal entry should consider how the total proceeds are allocated based on the given market values or another appropriate method, but the provided options and initial explanation do not align with this corrected understanding. The correct explanation should determine how the total proceeds from the sale of the packages are allocated between common and preferred stock based on their respective values or another method specified by accounting principles, which was not accurately reflected in the initial response. Revisiting the question with the correct understanding that the total proceeds from the sale are to be allocated to the common and preferred stocks, but recognizing the error in the initial calculation and explanation process, the correct answer should be derived from the information given and the standard accounting practices for such transactions. However, without the correct allocation method detailed in the initial response, the precise answer from the provided options cannot be accurately determined based on the initial incorrect explanation.

A Corporation Issues 50 "Packages" of Securities for $154 Per