Scribd
Upload
411 views3 pages

Intermediate Accounting II Chapter 15

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.

Uploaded by

izza zahratunnisa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
411 views3 pages

Intermediate Accounting II Chapter 15

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.

Uploaded by

izza zahratunnisa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 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

You might also like