Question

Sheridan Company issues 3600 shares of its $10 par value common stock having a fair value of $20 per share and 5600 shares of its $10 par value preferred stock having a fair value of $20 per share for a lump sum of $205400. What amount of the proceeds should be allocated to the preferred stock

Answer 1

$125,026

Step-by-step explanation:

Common Shares 3,600

Fair value $20

Total market value of common stock $72,000

Preferred shares 5,600

Fair value $20

Total market value of preferred stock $112,000

Lump Sum amount $205,400

Amount of proceeds should be allocated to the preferred stock = 205,400 * (112,000 / (72,000 + 112,000) ) = $125,026