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 10,000 units. each unit consists of a $500 par, 12% subordinated debenture and 10 shares of $5 par common stock. the investment banker has retained 400 units as the underwriting fee. the other 9,600 units were sold to outside investors for cash at $880 per unit. prior to this sale, the 2-week ask price of common stock was $40 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.

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Business

Keon Cooley

12 February, 04:02

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 10,000 units. each unit consists of a $500 par, 12% subordinated debenture and 10 shares of $5 par common stock. the investment banker has retained 400 units as the underwriting fee. the other 9,600 units were sold to outside investors for cash at $880 per unit. prior to this sale, the 2-week ask price of common stock was $40 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.

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Lillian Nguyen · Answer 1

The journal entries to record Evan's transaction is as follows:

Employing the incremental method.

Unamortized Bon 200,000

Cash 8,448,000

Bonds Payable 5,000,000

Common Stock 500,000

Paid-in Capital in E 3,148,000

Employing the proportional method, assuming the recent price quote on the common stock reflects fair value.

Cash 8,448,000

Unamortized Bon 195,556

Discount on Bond 111,111

Bonds Payable 5,000,000

Common Stock 500,000

Paid-in Capital in E 3,254,667