C is corrent. When stock is issued in combination with other securities (lump sum sales), the proceeds can be allocated by the proportional method or by the incremental method. If the FV of each class of securities is determinable, the proceeds should be allocated to each class of securities based on their relative FV. In the instances where the FV of all classes of securities is not determinable, the incremental method should be used. The market value of the securities is used as a basis for those classes that are known, and the remainder of the lump sum is allocated to the class for which the market value is not known. In this problem, the FV of the stock is unknown. As such, the incremental method must be used as follows:
A is incorrect. When stock is issued in combination with other securities (lump sum sales), the proceeds can be allocated by the proportional method or by the incremental method. If the FV of each class of securities is determinable, the proceeds should be allocated to each class of securities based on their relative FV. In the instances where the FV of all classes of securities is not determinable, the incremental method should be used. The market value of the securities is used as a basis for those classes that are known, and the remainder of the lump sum is allocated to the class for which the market value is not known. In this problem, the FV of the stock is unknown. As such, the incremental method must be used as follows:
B is incorrect. When stock is issued in combination with other securities (lump sum sales), the proceeds can be allocated by the proportional method or by the incremental method. If the FV of each class of securities is determinable, the proceeds should be allocated to each class of securities based on their relative FV. In the instances where the FV of all classes of securities is not determinable, the incremental method should be used. The market value of the securities is used as a basis for those classes that are known, and the remainder of the lump sum is allocated to the class for which the market value is not known. In this problem, the FV of the stock is unknown. As such, the incremental method must be used as follows:
A is incorrect. When stock is issued in combination with other securities (lump sum sales), the proceeds can be allocated by the proportional method or by the incremental method. If the FV of each class of securities is determinable, the proceeds should be allocated to each class of securities based on their relative FV. In the instances where the FV of all classes of securities is not determinable, the incremental method should be used. The market value of the securities is used as a basis for those classes that are known, and the remainder of the lump sum is allocated to the class for which the market value is not known. In this problem, the FV of the stock is unknown. As such, the incremental method must be used as follows:
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