Parker Corporation has issued 3,000 shares of common stock and 500 shares of pre
ID: 2767352 • Letter: P
Question
Parker Corporation has issued 3,000 shares of common stock and 500 shares of preferred stock for a lump sum of $124,000 cash. Calculate the allocation to common stock and preferred stock. A. The par value of the common stock was $6 and the fair value $32, and the par value of the preferred stock was $42 and the fair value $60. (Each valuation is on a per share basis and there are ready markets for each stock.) B. Assume the same facts as (a) above except the preferred stock has no ready market and the common stock has a fair value of $35 per share.
Explanation / Answer
A. Allocation to common stock and preferred stock.
B. Allocation to common stock and preferred stock, If preferred stock has no ready market and the common stock has a fair value of $35 per share.
The common stock will be allcated at $35 fair value and preferred stock will be allocated at $60 fair value as follows:
Coomon stock= 3000 shares*$35 = $105000
Preffered Stock = $124,000 - $105000 =$19,000
$19,000/500 shares =$38 per share is issue price of preffered stock.
Fair Value of shares $ Common(3000*$32) 96,000 Preffered(500*$60) 30,000 Total 126,000 Allocation to $ Common stock= $124,000*(96,000/126,000) 94,476 Preffered stock= $124,000*(30,000/126,000) 29,524 Total 124,000