ACCT 5010-INT II-HW-CH 15

ACCT 5010-INT II-HW-CH 15 - EXERCISE 15-3 (10-15 minutes)...

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EXERCISE 15-3 (10-15 minutes) (a) Land ($62 X 25,000). ................................................................. 1,550,000 Treasury Stock ($53 X 25,000). ....................................... 1,325,000 Paid-in Capital from Treasury Stock. .............................. 225,000 (b) One might use the cost of treasury stock. However, this is not a relevant measure of this economic event. Rather, it is a measure of a prior, unrelated event. The appraised value of the land is a reasonable alternative since the value of the asset acquired should preferably determine the issue price of the stock. However, it is an appraisal as opposed to a cash price. The trading price of the stock is probably the best measure of market value in this transaction. EXERCISE 15-4 (20-25 minutes) (a) 1. Bond Issue Costs ($352,000 X $500/$880). ............................ 200,000 Cash ($880 X 9,600). ............................................................... 8,448,000 Bonds Payable. ............................................................... 5,000,000 Common Stock. .............................................................. 500,000 Paid-in Capital in Excess of Par. .................................... 3,148,000 Assumes bonds properly priced and issued at par; residual attributed to common stock which has a weak measure of market value. Investment banking costs 400 @ $880 = $352,000 allocate 5/8.8 to debentures and 3.8/8.8 to common stock. Bond portion is bond issue cost; common stock portion is a reduction of paid-in capital. 2. Cash . ............................................................................. 8,448,000 Bond Issue Costs. ........................................................................... 195,556 Bond Discount. .............................................................................. 111,111 Bonds Payable ($5,000,000 – $4,888,889). ......................... 5,000,000
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Common Stock. .................................................................... 500,000 Paid-in Capital in Excess of Par. .......................................... 3,254,667 $8,800,000 X (5/9) = $4,888,889 To Debentures $8,800,000 X (4/9) = $3,911,111 To Common $352,000 X (5/9) = $195,556 $352,000 X (4/9) = $156,444 Paid-in capital in excess of par = $3,911,111 – $500,000 – $156,444 = $3,254,667 (b) One is not better than the other. This question is presented to stimulate some thought and class discussion. EXERCISE 15-5 (10-15 minutes) (a) FMV of Common (500 X $165) $ 82,500 FMV of Preferred (100 X $230) 23,000 $105,500 Allocated to Common: $82,500/$105,500 X $100,000 $ 78,199 Allocated to Preferred: $23,000/$105,500 X $100,000 21,801 Total allocation (rounded to whole dollars) $100,000 Cash .................................................................... 100,000 Common Stock (500 X $10). ..................................................... 5,000
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This note was uploaded on 06/17/2008 for the course ACCT 5101 taught by Professor Green during the Spring '07 term at University of West Georgia.

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ACCT 5010-INT II-HW-CH 15 - EXERCISE 15-3 (10-15 minutes)...

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