Question

Issuance of Security Packages

LO 15.3 Occasionally, a corporation will combine securities into a “package” (for example, common stocks, preferred stocks, bonds) and issue these securities as a single unit.

Required:

1. Assuming that two securities (common stock and preferred stock) are issued as a unit, explain the alternative ways of valuing the separate stocks of the unit in an exchange for (1) cash or (2) an asset(s) other than cash.

Answer 1

Answer: Summarized the information given in the question; ocasionally. a cooporation will combine--- * when a corporation issues different types of securities in a combined sale, it allocates the proceeds between the securities based on the relative fair value of each security. If the fait value of only one of the secuoities is known, the fair value amount is assigned to that security. The Gemaining proceeds are assigned to the security with the unknown fair value

* Non- monetary issuance of stock it @ means, issued capital stock for assets other than cash or for services performed. The corporation have to determine proper value to the assets, this valuation makes difficulty in the case of intangible assets such as patents, copyrights of organization costs. The main concept regarding in the valuation should record the exchange at the fair value of the stock issued of the asset received, whichever be measured with greater value should be taken for recording in the exchange transaction Example Jouonal entores for stock valve kreiero L-coop issues. 2008 hares $10 per common shate stock for a land. The stock is selling $25 per share on the open market and significant impact on the maoket porce by the issuance of the additional shares is expected. Linda assigns $5000 to the exchange & makes the following entry;

5000 2000 Datel particulaos Debit Credit cash ($25x200) common stock, $10.par (800 shares) Additional paid in capital on common stock (as per 3000 to recood the common stock sold for the cash) *fair value of stock not known, Wo coep issues 100 shares $12 per common stock fees, not widely usaded for a patent. the portent currently is selling for $.4000. Williams uses the appraisal value of the pateent as the fair value . Date Particulares Debit credit Patent 4000 common stock $12.par 1200 Additional pard in Capital 2800 (to teceed the commen stock issuance other then cash) * please ... please kindly Up-vote Thank you