Question

602 Module 15: Stockholders' Equity Multiple-Choice Questions (1-94) A. Common Stock 1. East Co. issued 1,000 shares of its $5 par common stock to Howe as compensation for 1,000 hours of legal services performed. Howe usually bills $160 per hour for legal services. On the date of issuance, the stock was trading on a public exchange at $140 per share. By what amount should the additional paid-in capital account increase as a result of this transaction? a. $135,000 b. $140,000 c. $155,000 d. $160,000 • Common ste originally is • Preferred se issued for Hyde's April 1, should report Col 2. On July 1, year 1, Cove Corp., a closely held corporation, issued 6% bonds with a maturity value of $60,000, together with 1,000 shares of its $5 par value common stock, for a combined cash amount of $110,000. The market value of Cove's stock cannot be ascertained. If the bonds were issued separately, they would have sold for $40,000 on an 8% yield to maturity basis. What amount should Cove report for additional paid-in capital on the issuance of the stock? a. $75,000 ! b. $65,000 c. $55,000 d. $45,000 6. On Marc $20 par val value conve date, Rya!! the conver What amo convertib 1.b c. 3. Beck Corp. issued 200,000 shares of common stock when it began operations in year 1 and issued an additional 100,000 shares in year 2. Beck also issued preferred stock convertible 100,000 shares of common stock. In year 3, Beck purchased 5,000 shares of its common stock and held it in Treasury. At ecember 31, year 3, how many shares of Beck's common eck were outstanding? 7. Du conve of pre Brad share of th stoc Coi

Answer 1

Question No. - (1) - Answer -

Step - ( 1 ) - Facts of the Question given -

East Co. issued 1000 shares of its $5 par common stock to Howe as compensation.

On the date of issuance, the stock was trading on a public exchange at $140 per share.

By what amount should the additional paid-in capital account increase as a result of this transaction -

• Option - (a) - $135000
• Option - (b) - $140000
• Option - (c) - $155000
• Option - (d) - $160000

.

Step - ( 2 ) - Analysis -

Additional paid-in capital is the value of share capital above its stated par value.

In the given case

• Number of shares issued = 1000 shares.
• Par value = $5 per share.
• Issue price = $140 per share.

So, Additional paid-in capital =

= [ ( Issue price per share - Par value per share ) * Number of shares issued ]

= ( $140 - $5 ) * 1000 shares

= $135 * 1000 shares

= $135000

.

Step - ( 3 ) - Conclusion -

Option - (a) - is Correct, because additional paid-in capital account would increase by $135000.