Answered: ) Employing the incremental method.…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Swifty Corporation is a regional company which is an SEC registrant. The corporation’s securities are thinly traded on NASDAQ. Swifty Corp. has issued 12,000 units. Each unit consists of a $600 par, 12% subordinated debenture and 12 shares of $6 par common stock. The units were sold to outside investors for cash at $1,056 per unit. Prior to this sale, the 2-week ask price of common stock was $48 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.

(a) Prepare the journal entry to record Swifty’s transaction, under the following conditions. (Round answers to 0 decimal places, e.g. $38,487. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

(1)		Employing the incremental method.
(2)		Employing the proportional method, assuming the recent price quote on the common stock reflects fair value.

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