Question

Flounder Corporation is a regional company which is an SEC registrant. The corporation's securities are thinly traded on NASDAQ. Flounder Corp. has issued 15,500 units. Each unit consists of a $775 par, 12% subordinated debenture and 16 shares of $8 par common stock. The units were sold to outside investors for cash at $1,364 per unit. Prior to this sale, the 2-week ask price of common stock was $62 per share. Twelve percent is a reasonable market yield for the debentures, and therefore the par value of the bonds is equal to the fair value. (a) Prepare the journal entry to record Flounder's transaction, under the following conditions. (Round answers to O decimal places, e.g. $38,487. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter for the amounts.) (1) (2) Employing the incremental method. Employing the proportional method, assuming the recent price quote on the common stock reflects fair value. Debit Credit No. Account Titles and Explanation 1. 2.

Answer 1

А B с D 65 66 1). 67 Date Credit 68 69 Debit $7,68,800 $1,97,88,912 Account Titles and Explanation Unamortized bond issue costs Cash Bonds payable Common stock Paid-in-capital in excess of par-Common stock 70 71 $1,20,12,500 $1,24,000 $84,21,212 72 73 74 Date Credit 75 76 Debit $5,93,460 $1,97,88,912 $27,39,693 77 Account Titles and Explanation Unamortized bond issue costs Cash Bond discount Bonds payable Common stock Paid-in-capital in excess of par-Common stock 78 79 80 81 $1,20,12,500 $1,24,000 $1,09,85,565 82 83 84 85 86 Total fair value = Subordinated debentures + Common stock Total fair value = $775 +(16 x $62) Total fair value = $775 + $992 Total fair value = $1,767

A B С D 65 66 67 1). Date Credit 68 69 Debit =(62*16*1364)*775/1364 =(15500-(62*16))*1364 Account Titles and Explanation Unamortized bond issue costs Cash Bonds payable Common stock Paid-in-capital in excess of par-Common stock 70 71 72 73 =15500*775 =15500*8 =C68+C69-D70-D71 74 75 Date 76 77 78 79 80 Account Titles and Explanation Unamortized bond issue costs Cash Bond discount Bonds payable Common stock Paid-in-capital in excess of par-Common stock Debit Credit =(62*16*1364*775/1767 =D81+D80+D79-C76-C78 =(15500*775)-(1364*15500)*775/1767) 1=15500*775 =15500*8 =((1364*15500)*992/1767)-124000-62*16*1364*992/1767) 81