Question

Sheffield Corp. issued 5900 shares of its $5 par value common stock having a fair value of $25 per share and 8400 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $254000. The proceeds allocated to the preferred stock is

$168000

$135252

$169800

$118748

Answer 1

Answer:

Option b. 135,252

Calculation:

To calculate the proceeds allocated to the preferred stock we need to multiply the preferred shares with fair value of share and divide it with the total common stock and preferred shares multiplied with the respective fair value, then multiply the result with the lump sum.

Proceeds allocated to the Preferred Stock = (No of Preferred shares x fair value) / ((No of Common stock x fair value) + (No of Preferred shares x fair value)) x lump sum amount

= (8,400 x 20) / ((5,900 x 25) + (8,400 x 20)) x 254000 = 135,252