Question

Novak Corporation’s charter authorized issuance of 110,000 shares of $10 par value common stock and 49,300 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 $10,700, 9% bond payable at par and gave as a bonus one share of preferred stock, which at that time was selling for $97 a share. 2. Issued 480 shares of common stock for equipment. The equipment had been appraised at $7,500; the seller’s book value was $5,700. The most recent market price of the common stock is $16 a share. 3. Issued 373 shares of common and 107 shares of preferred for a lump sum amounting to $9,800. The common had been selling at $14 and the preferred at $67. 4. Issued 180 shares of common and 51 shares of preferred for equipment. The common had a fair value of $16 per share; the equipment has a fair value of $6,900.

Answer 1

1)	Cash	10700
	Discount on bonds payable	97
	Bonds payable		10700
	Preferred stock		50
	Paid in capital in excess of par-Preferred stock		47
2)	Equipment (480*16)	7680
	Common stock		4800
	Paid in capital in excess of par-Common stock		2880
	[Note: Price of the stock is used to value the
	equipment as it is more verifiable)
3)	Cash	9800
	Preferred stock (107*50)		5350
	Paid in capital in excess of par-Preferred stock (5670-5350)		320
	Common stock (373*10)		3730
	Paid in capital in excess of par-Common stock		400
	ALLOCATION BASED ON FAIR VALUE:	Total Fair Value	Proportion	Allocated Amount
	Fair value of common stock = 373*14 =	5222	0.4214	4130
	Fair value of preferred stock = 107*67 =	7169	0.5786	5670
	Total	12391	1.0000	9800
4)	Equipment	6900
	Preferred stock (51*50)		2550
	Paid in capital in excess of par-Preferred stock		1470
	Common stock (180*10)		1800
	Paid in capital in excess of par-Common stock		1080
	[Note: Fair value of equipment and fair value of common
	stock has been used; preferred stock getting the difference
	in value}