Homework Answers
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.
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