The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is
A) the pro forma method.
B) the proportional method.
C) the incremental method.
D) either the proportional method or the incremental method.

Question

Quizplus · Accepted Answer

Both the proportional method and the incremental method are acceptable methods of allocation in a lump sum issuance depending on the specific circumstances. The proportional method allocates the proceeds based on the relative fair values of each security, while the incremental method allocates the proceeds based on the incremental fair value of each security issued compared to the fair value of the securities already issued. Therefore, either of these methods can be used depending on the specific details of the issuance.

The Accounting Problem in a Lump Sum Issuance Is the Allocation