Answer and Explanation:
The proportional method is a method of allocating the fair market value of each security from the lump sum sale on the balance sheet based on the ratio of the value of the security to other securities involved in the sale.
It is calculated : fair market value of security/total lump sum sale
The proportional method is one of the methods used when a company sells in lump sum(usually when a business acquires another) as against when a company sells a particular class of stock such as ordinary stock or preferred stock. Using the proportional method, it is assumed that the fair market value of the classes of stock are known and so the company allocates the ratio of different classes involved on the balance sheet based on each class's fair market value. Another method for accounting for this kind of transaction as in allocating classes of stock from lump sale on the balance sheet is the incremental method