Question

On March 1, Rya Corp. issued 1,000 shares of its $20 par value common stock and 2,000 shares of its $20 par value convertible preferred stock for a total of $80,000. At this date, Rya's common stock was selling for $36 per share, and the convertible preferred stock was selling for $27 per share. What amount of the proceeds should be allocated to Rya's convertible preferred stock?

Answer 1

Answer:

$48,000

Explanation:

Given data:

common Shares issued = 1,000

Par value of common stocks = $ 20

Number of proffered stocks = 2,000

Selling price of the common stocks = $ 36

Selling price of the preferred stocks = $ 27

Now,

the market value of the common stocks = 1,000 × $36 = $ 36,000

and,

The market value of the preferred stocks = 2,000 × $27 = $ 54,000

Thus, the total market value of the stocks to be sold = $ 36,000 + $ 54,000

= $90,000

Now,

Allocation of proceeds to preferred = (market value of the preferred stocks / market value of the total stocks) × Value of convertible preferred stocks

on substituting the values, we have

($ 54000 / $90,000) × $80,000

or

= $48,000