Question
Faith Evans Corporation is a regional company which is an SEC registrant. The corporations securities are thinly traded on NASDAQ. Faith Evans Corp. has issued
Faith Evans Corporation is a regional company which is an SEC registrant. The corporations 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 thebonds is equal to the fair value.
Prepare the journal entry to record Evans' transaction, under the folowing conditions.
(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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