/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Question 8Q Explain the difference between t... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 15: Question 8Q (page 810)

Explain the difference between the proportional method and the incremental method of allocating the proceeds of lump-sum sales of capital stock.

Short Answer

Expert verified

The proportional and incremental methods are both used according to the different approaches performed by the company.

Step by step solution

01

Meaning Proportional Method

A proportionate technique is a mechanism for allocating a lump-sum sale among one or more classes of securities. It is also known as the pro-rata basis of allocation.

02

Differences between proportional and incremental method

When the fair value or another good foundation for assessing relative value is available for each class of security, the proportionate technique is used to allocate the lump sum received on salesof two or more classes of securities.

The incremental method must be utilized when the fair valueof all classes of securities cannot be determined in a lump-sum transaction.

For the classes for which the value is known, the value of the securities is used. The balance is allocated to the class for which the value is unknown.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

(Dividends and Splits) Myers Company provides you with the following condensed balance sheet information.

Asset

Current assets \(40,000

Equipment (net) 250,000

Intangibles 60,000

Total assets \)410,000

Liabilities and Stockholders鈥� Equity

Current and long-term liabilities \(100,000

Stockholders鈥� equity

Common stock (\)5 par) \( 20,000

Paid-in capital in excess of par 110,000

Retained earnings 180,000 310,000

Total liabilities and stockholders鈥� equity \)410,000

Instructions

For each of the following transactions, indicate the dollar impact (if any) on the following five items: (1) total assets, (2) common stock, (3) paid-in capital in excess of par, (4) retained earnings, and (5) stockholders鈥� equity. (Each situation is independent.)

  1. Myers declares and pays a \(0.50 per share cash dividend.
  2. Myers declares and issues a 10% stock dividend when the market price of the stock is \)14 per share.
  3. Myers declares and issues a 30% stock dividend when the market price of the stock is \(15 per share.
  4. Myers declares and distributes a property dividend. Myers gives one share of its equity investment (ABC stock) for every two shares of Myers Company stock held. Myers owns 10,000 shares of ABC. ABC is selling for \)10 per share on the date the property dividend is declared.
  5. Myers declares a 2-for-1 stock split and issues new shares.

Discuss the propriety of showing:

  1. Treasury stock as an asset.
  2. 鈥淕ain鈥� or 鈥渓oss鈥� on sale of treasury stock as additions to or deductions from income.
  3. Dividends received on treasury stock as income.

Joe Dumars Company has outstanding 40,000 shares of \(5 par common stock, which had been issued at \)30 per share. Joe Dumars then entered into the following transactions.

  1. Purchased 5,000 treasury shares at \(45 per share.
  2. Resold 2,000 of the treasury shares at \)49 per share.
  3. Resold 500 of the treasury shares at $40 per share.

Instructions

Use the following code to indicate the effect each of the three transactions has on the financial statement categories listed in the table below, assuming Joe Dumars Company uses the cost method (I = Increase; D = Decrease; NE = No effect).

#

Asset

Liabilities

Stockholders鈥� Equity

Paid-in Capital

Retained

Earnings

Net Income

1

2

3

The books of Conchita Corporation carried the following account balances as of December 31, 2017.

Cash \( 195,000

Preferred Stock (6% cumulative, nonparticipating, \)50 par) 300,000

Common Stock (no-par value, 300,000 shares issued) 1,500,000

Paid-in Capital in Excess of Par鈥擯referred Stock 150,000

Treasury Stock (common 2,800 shares at cost) 33,600

Retained Earnings 105,000

The company decided not to pay any dividends in 2017.

The board of directors, at their annual meeting on December 21, 2018, declared the following: 鈥淭he current year dividends shall be 6% on the preferred and \(.30 per share on the common. The dividends in arrears shall be paid by issuing 1,500 shares of treasury stock.鈥� At the date of declaration, the preferred is selling at \)80 per share, and the common at \(12 per share. Net income for 2018 is estimated at \)77,000.

Instructions

a) Prepare the journal entries required for the dividend declaration and payment, assuming that they occur simultaneously.

b) Could Conchita Corporation give the preferred stockholders 2 years鈥� dividends and common stockholders a 30 cents per share dividend, all in cash?

Seles Corporation鈥檚 charter authorized issuance of 100,000 shares of \(10 par value common stock and 50,000 shares of \)50 preferred stock. The following transactions involving the issuance of shares of stock were completed. Each transaction is independent of the others.

  1. Issued a \(10,000, 9% bond payable at par and gave as a bonus one share of preferred stock, which at that time was selling for \)106 a share.
  2. Issued 500 shares of common stock for equipment. The equipment had been appraised at \(7,100; the seller鈥檚 book value was \)6,200. The most recent market price of the common stock is \(16 a share.
  3. Issued 375 shares of common and 100 shares of preferred for a lump sum amounting to \)10,800. The common had been selling at \(14 and the preferred at \)65.
  4. Issued 200 shares of common and 50 shares of preferred for equipment. The common had a fair value of \(16 per share; the equipment has a fair value of \)6,500.

Instructions

Record the transactions listed above in journal entry form.
See all solutions

Recommended explanations on Business Studies Textbooks

Business Case Studies

Read Explanation

Accounting

Read Explanation

International Business

Read Explanation

Startups

Read Explanation

Managers

Read Explanation

Corporate Finance

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.