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    Intermediate Accounting II Chapter 15

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    izza zahratunnisa
    This document contains accounting journal entries and calculations for stockholder's equity transactions. It addresses two examples (E15-4 and E15-5) involving the allocation of lump-sum cash receipts between different classes of shares. For E15-4, it compares the incremental and proportional methods for allocating proceeds between bonds and common stock. For E15-5, it allocates a $100,000 cash receipt between ordinary and preference shares based on the relative fair values of each class.

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    Intermediate Accounting II Chapter 15

    Uploaded by

    izza zahratunnisa
    231 views3 pages
    This document contains accounting journal entries and calculations for stockholder's equity transactions. It addresses two examples (E15-4 and E15-5) involving the allocation of lump-sum cash receipts between different classes of shares. For E15-4, it compares the incremental and proportional methods for allocating proceeds between bonds and common stock. For E15-5, it allocates a $100,000 cash receipt between ordinary and preference shares based on the relative fair values of each class.

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    Intermediate Accounting II Chapter 15

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    This document contains accounting journal entries and calculations for stockholder's equity transactions. It addresses two examples (E15-4 and E15-5) involving the allocation of lump-sum cash receipts between different classes of shares. For E15-4, it compares the incremental and proportional methods for allocating proceeds between bonds and common stock. For E15-5, it allocates a $100,000 cash receipt between ordinary and preference shares based on the relative fair values of each class.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    231 views3 pages

    Intermediate Accounting II Chapter 15

    Uploaded by

    izza zahratunnisa
    This document contains accounting journal entries and calculations for stockholder's equity transactions. It addresses two examples (E15-4 and E15-5) involving the allocation of lump-sum cash receipts between different classes of shares. For E15-4, it compares the incremental and proportional methods for allocating proceeds between bonds and common stock. For E15-5, it allocates a $100,000 cash receipt between ordinary and preference shares based on the relative fair values of each class.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    Izza Zahratunnisa

    Intermediate Accounting II
    19/438318/EK/22150

    Assignment 1:
    Chapter 15 - Stockholders’ Equity

    E15-4:

    (a) Journal entry for Fogelberg’s transaction:

    Cash ($850 x 9,600) 8,160,000

    Bonds Payable ($5,000 - $200,000) 4,800,000

    Share Capital — Ordinary (100,000 x $5) 500,00

    Share Premium — Ordinary 2,860,000

    1. Incremental method:

    Lump-sum receipt (9,600 x $850) $8,160,000

    Allocated to subordinates of debentures (9,600 x (4,800,000)


    $500)

    Balance allocated to ordinary shares 3,360,000

    Computation of share capital and share premium:

    Balance allocated to ordinary shares $3,360,000

    Less: Share capital (10,000 x $5 x 10) 500,000

    Share premium $2,860,000

    Bond issue cost allocation:

    Total issue cost (400 x $850) $340,000

    Less: Amount allocated to bonds 200,000

    Amount allocated to ordinary shares $140,000

    2. Proportional method:

    Cash 8,160,000

    Bonds Payable 4,533,333

    Share Capital — Ordinary (100,000 x $5) 500,000

    Share Premium — Ordinary 3,126,667


    Izza Zahratunnisa
    Intermediate Accounting II
    19/438318/EK/22150

    Allocation based when assuming the recent price quote on the common stock reflects fair
    value:

    Subordinate debenture $500

    Ordinary shares (10 x $40) 400

    Total fair value $900

    (b) In my opinion and with observations of knowledge, I think that the proportional
    method is a better approach as it is more time-efficient and convenient due to the fact
    that it includes less steps, and that with the incremental method, the value of the sum
    purchase has to first be allocated to securities with known market values. However, the
    incremental method is preferred for use if the market value of a security involved in a
    lump-sum sale is unknown.

    E15-5:

    (a)

    Fair value of Ordinary Shares (500 x $168) $84,000

    Fair value of Preference Shares 21,000

    $105,000

    Allocated to Ordinary Shares:


    $80,000
    $84,000/$105,000 x $10,000

    Allocated to Preference Shares:


    20,000
    $21,000/$105,000 x $100,000

    Total allocation $100,000

    Cash 100,000

    Share Capital — Ordinary (500 x $10) 5,000

    Share Premium — Ordinary ($80,000 - $ 5,000) 75,000

    Share Capital — Preference (100 x $100) 10,000

    Share Premium — Preference ($20,000 - $10,000) 10,000


    Izza Zahratunnisa
    Intermediate Accounting II
    19/438318/EK/22150

    (b)

    Lump-sum Receipt $100,000

    Allocated to ordinary (500 x $170) (85,000)

    Balance allocated to preference $15,000

    Cash 100,000

    Share Capital — Ordinary 5,000

    Share Premium — Ordinary ($85,000 - $5,000) 80,000

    Share Capital — Preference 10,000

    Share Premium — Preference ($15,000 - $10,000) 5,000

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