question archive At the beginning of the current year, Ria company issued 10,000 ordinary shares of P20 par value and 20,000 convertible preference shares of P20 par value for a total of P800,000
At the beginning of the current year, Ria company issued 10,000 ordinary shares of P20 par value and 20,000 convertible preference shares of P20 par value for a total of P800,000
Subject:AccountingPrice:2.87 Bought7
At the beginning of the current year, Ria company issued 10,000 ordinary shares of P20 par value and 20,000 convertible preference shares of P20 par value for a total of P800,000.
At this date, the ordinary share was selling for P36, and the convertible preference share was selling for P27.
What amount of the proceeds should be allocated to the preference shares?
a. 600,000
b. 540,000
c. 480,000
d. 440,000
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Answer:
c .
Step-by-Step explanation
Hi, the proceeds should be allocated on the basis of market value of issue.
Market Value of Ordinary shares = 10,000 * 36 = 360,000
Market Value of preference shares = 20,000 * 27 = 540,000
Total Market Value of issue = 360,000 + 540,000 = 900,000
Using above market values as weights:
Weight of Ordinary shares = 36/90
Weight of preference shares = 54/90
Allocation of proceeds based on market value weights:
Ordinary shares - 800,000*(36/90) = 320,000
Preference shares - 800,000*(54/90) = 480,000
