Metlock Corporation is a regional company which is an SEC registrant. The corporations securities are thinly traded on NASDAQ. Metlock Corp. has issued 11,500 units. Each unit consists of a $575 par, 12% subordinated debenture and 12 shares of $6 par common stock. The units were sold to outside investors for cash at $1,012 per unit. Prior to this sale, the 2-week ask price of common stock was $46 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 Metlocks transaction, under the following conditions.

(1) Employing the incremental method.

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

Debit Credit No. Account Titles and Explanation Cash 11,638,000 Bonds Payable 6,612,500 Common Stock 828,000 Paid-in Capital in Excess of Par - Common Stock 4,197,500 Cash 11,638,000 Discount on Bonds Payable Bonds Payable 6,612,500 Common Stock 828,000 Paid-in Capital in Excess of Par - Common Stock