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8 November, 16:13

Wheeler Company issued 5,000 shares of its $5 par value common stock having a fair value of $25 per share and 7,500 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $260,000.

The proceeds allocated to the preferred stock is:

a. $232,917b. $162,500c. $141,818d. $118,182

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  1. 8 November, 16:28
    0
    Option (c) $141,818

    Explanation:

    Data provided in the question:

    Number of common stocks issued = 5,000

    Value of common stock = $25 par value

    Number of preferred stocks issued = 7,500

    Value of preferred stock = $20 par value

    Lump sum value of total shares issued = $260,000

    Now,

    Fair value of the preferred stocks = 7,500 * $20

    = $150,000

    Fair value of the common stocks = 5,000 * $25

    = $125,000

    Thus,

    Total value of the stocks issued = $150,000 + $125,000

    = $275,000

    Therefore,

    Proceeds allocated to the preferred stock

    = Lump sum value * [ Fair value of the preferred stocks : value of the stocks ]

    = $260,000 * [ $150,000 : $275,000 ]

    = $141,818.18 ≈ $141,818

    Hence,

    Option (c) $141,818
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