E15-4B (Lump-Sum Sale of Stock with Bonds) Zurg Inc. is an SEC registrant and it

E15-4B (Lump-Sum Sale of Stock with Bonds) Zurg Inc. is an SEC registrant and its securities are thinly traded on NASDAQ (National Association of Securities Dealers Quotes). Zurg Inc. issued 10000 units.Each unit consists of a $1000 par 16% subordinated debenture and 5 shares of $5 par common stock. The investment banker has retained 500 units as the underwriting fee. The other 9500 units were sold to outside investors for cash at $1150 per unit. Prior to this sale the 2-week ask price of common stock was $25per share. Sixteen percent is a reasonable market yield for the debentures and therefore the par value ofthe bonds is equal to the fair value.Instructions(a) Prepare the journal entry to record the previous transaction under the following conditions.(1) Employing the incremental method.(2) Employing the proportional method assuming the recent price quotes on the common stock reflect fair value.(b) Briefly explain which method is in your opinion the better method.

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