Question

Exercise I: Coke Corporation issued 333 shares of 556 par value common stock and 133 shares of $58 par value preferred stock for a lump sum of $38876. The common stock has a market value of 557 per share, and the preferred stock has a market value of $62 per share. Prepare the journal entry of allocating proceeds in two methods: 1. the proportional method and 2. the incremental method (in this case assume the value of the preferred stock is unknown).

Answer 1

PROPORTIONAL METHOD

JOURNAL ENTRY

Cash	27102
Common Stock (par value)		18648
Additional Paid-In Capital		8454

Cash	11774
Preferred Stock(par value )		7714
Additional Paid-In Capital		4060

working notes

Fair Market Value of Common Stock (333 shares at $57.00 per share)	$18981
Fair Market Value of Preferred Stock (133 shares at $62.00 per share)	$8246
Fair Market Value of Lump-Sum Purchase	$27227
Allocation to Common Stock ($18981 / $27227) x $38876	$27102
Allocation to Preferred Stock ($8246 / $27227) x $38876	$11774
Total Allocation of Lump-Sum Purchase	$38876

2.THE INCREMENTAL METHOD

JOURNAL ENTRY

Cash	18648
Common Stock(PAR VALUE )		18648
Additional Paid-In Capital		N/A

Cash	20228
Preferred Stock		7714
Additional Paid-In Capital		12514

WORKING NOTES

Allocation to Common Stock (333 shares at $56.00 per share)	$18648
Fair Market Value of Lump-Sum Purchase	$38876
Allocation to Preferred Stock	$20228

HOPE IT HELPS