Question

On July 1, 2018, Nall Co. issued 2,500 shares of its $10 par common stock and 5,000 shares of its $10 par convertible preferred stock for a lump sum of $140,000. At this date Nall's common stock was selling for $24 per share and the convertible preferred stock for $18 per share. The amount of the proceeds allocated to Nall's preferred stock should be __________.a. $70,000.

b. $84,000.
c. $90,000.
d. $77,000.

Answer 1

B) $84,000.

Step-by-step explanation:

2,500 common stock x $24 market price per stock = $60,000

5,000 preferred stock x $18 market price per stock = $90,000

total market price = $150,000

since only $140,000 was received, the stock price must be adjusted by $140,000 / $150,000 = 93.33%

• common stock = $60,000 x 93.33% = $56,000
• preferred stock = $90,000 x 93.33% = $84,000