Faith Evans Corporation is a regional company which is an SEC registrant. The co
ID: 2586212 • Letter: F
Question
Faith Evans Corporation is a regional company which is an SEC registrant. The corporation’s securities are thinly traded on NASDAQ. Faith Evans Corp. has issued 10,300 units. Each unit consists of a $515 par, 12% subordinated debenture and 10 shares of $5 par common stock. The investment banker has retained 412 units as the underwriting fee. The other 9,888 units were sold to outside investors for cash at $906 per unit. Prior to this sale, the 2-week ask price of common stock was $41 per share. Twelve percent is a reasonable market yield for the debentures, and therefore the par value of the bonds is equal to the fair value. Prepare the journal entry to record Evans’ transaction, under the following conditions. (Round answers to 0 decimal places, e.g. $38,487. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) (1) Employing the incremental method. (2) Employing the proportional method, assuming the recent price quote on the common stock reflects fair value.
Explanation / Answer
Using Proportional Method:
Each unit consists of 2 parts, Bond part with value 515 and stock part with value 10*41=410
total value = 925
Using Incremental method:
Cash 8958528 Unamortized Bond issue Costs 206813 Bond Discount 109966 Bonds payable 5304500 Paid-in Capital in Excess of Par 3455807 Common Stock 515000Related Questions
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