Question

Duszynski Company issues 20,000 shares of its $.50 par value common stock having a market value of $25 per share and 6,000 shares of its $25 par value preferred stock having a market value of $50 per share for a lump sum of $750,000. The proceeds allocated to the common stock is?

Answer 1

The proceeds allocated to the common stock is $468,750.

Step-by-step explanation:

In this case, the total lump sum of $750,000 is allocated to both the common stock and preferred stock. To calculate the proceeds allocated to the common stock, we need to determine the proportion of the lump sum that corresponds to the value of the common stock.

First, we calculate the total market value of the common and preferred stock: 20,000 shares of common stock x $25 per share = $500,000 and 6,000 shares of preferred stock x $50 per share = $300,000.

Next, we find the ratio of the common stock's market value to the total market value: $500,000 / ($500,000 + $300,000) = 0.625.

Finally, we allocate the lump sum to the common stock by multiplying the ratio by the total lump sum: 0.625 x $750,000 = $468,750.

Answer 2

The proceeds allocated to common stock = 20,000 x $25 =$500,000

Step-by-step explanation:

The proceeds allocated to common stock = 20,000 x $25 =$500,000

Here, common stock was sold at premium above the par value, hence following entries applied :

CR Common Stock $10,000 (20,000 x $.50)

CR Common stock premium Account $490,000 ( $500,000 - $10,000 )

DR Cash/ Bank Account $500,000.