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a company issues 1,000 shares of its $5 par common stock that has a market value of $10 and 1,000 shares of its $20 par preferred stock that has no established market value for a lump sum of $50,000. therefore, $10,000 of the proceeds will be allocated to the common stock accounts and $40,000 to the preferred accounts.

Respuesta :

The amount to be allocated to the common stock is $6000. The given statement is false.

Given that,:

Number of common stocks issued = 1000

Value of common stock = $5

Market value per share = $10

Number of shares of $20 par value = 1,000

Preferred stock having a fair value of $20 per share = $50,000

Total market value of the stocks = 1,000 × $10 + 1,000 × 20 =  $30,000

Now,

The proceeds that should be allocated to the common stock will be:

(Total market value of the common stocks/total market value of the shares)*Preferred value of total stocks

= (1000*10/50000)*30000

=$6000

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