Question

Exercise 15-4 Indigo Corporation is a regional company which is an SEC registrant. The corporation's securities are thinly traded on NASDA Indigo Corp. has issued 22,000 units. Each unit consists of a $1,100 par, 12% subordinated debenture and 22 shares of $11 par common stock. The units were sold to outside investors for cash at $1,936 per unit. Prior to this sale, the 2-week ask price of common stock was $88 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 Indigo's transaction, under the following conditions. (Round answers to 0 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 O for the amounts.) (1) Employing the incremental method. (2) Employing the proportional method, assuming the recent price quote on the common stock reflects fair valuc. No. Account Titles and Explanation Debit Credit

Answer 1

No.	Account Titles & Explanation	Debit	Credit
1.	Cash (22000 * $1936)	$42592000
	Bonds Payable (22000 * $1100)		$24200000
	Common Stock (22000 * 22 * $11)		$5324000
	Paid in Capital in Excess of Par - Common Stock		$13068000
2.	Cash (22000 * $1936)	$42592000
	Unammoartised Bond ($24200000 - $23662222)	$537778
	Bonds Payable (22000 * $1100)		$24200000
	Common Stock (22000 * 22 * $11)		$5324000
	Paid in Capital in Excess of Par - Common Stock		$13605778

Explanations:-

Lump sum (22000 * $1936)                                                $42592000

Allocated Subordinated Debenture ($42592000*(5/9)       $23662222

Allocated Common Stock ($42592000*(4/9)                     $18929778

Paid in Capital in Excess of Par                                            $18929778

Less: Common Stock (22000 * 22 * $11)                         ($5324000)

                                                                                       $ 13605778