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

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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 Paid-in Capital in Excess of Par— Common ($78,199 – $5,000) ................................................. 73,199 Preferred Stock (100 X $100) .................................................... 10,000 Paid-in Capital in Excess of Par— Preferred ($21,801 – $10,000) ............................................. 11,801
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(b) Lump-sum receipt $100,000 Allocated to common (500 X $170) 85,000 Balance allocated to preferred $ 15,000 Cash .................................................................................................... 100,000 Common Stock ........................................................................... 5,000 Paid-in Capital in Excess of Par— Common ($85,000 – $5,000) ................................................. 80,000 Preferred Stock ........................................................................... 10,000 Paid-in Capital in Excess of Par— Preferred ($15,000 – $10,000) ............................................... 5,000 EXERCISE 15-6 (25-30 minutes) (a) Cash [(5,000 X $45) – $7,000] ...................................................... 218,000 Common Stock (5,000 X $5) ............................................... 25,000 Paid-in Capital in Excess of Par ........................................... 193,000 (b) Land (1,000 X $46) ................................................................................ 46,000 Common Stock (1,000 X $5) ....................................................... 5,000 Paid-in Capital in Excess of Par ................................................... 41,000 ($46,000 – $5,000) Note : The market value of the stock ($46,000) is used to value the exchange because it is a more objective measure than the appraised value of the land ($50,000).
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