APPLY THE CONCEPTS: Issuing Capital Stock When stock is sold, the monetary amoun
ID: 2424095 • Letter: A
Question
APPLY THE CONCEPTS: Issuing Capital Stock When stock is sold, the monetary amount gained from the sale is divided into two parts. First, the par value of the stock is recorded when received for the sale. Second, any amount received above the par value for the stock is recorded as paid-in capital in excess of par (also called additional paid-in capital). Suppose a company is authorized by its charter to sell 75,000 shares of $1 par value common stock. The minimum price for which this stock could be sold under normal circumstances is $ ? per share. On November 26, the company issues 30,000 shares of common stock for a selling price of $17 per share. The company will receive cash of $? . It will record common stock in the amount of $? and paid-in capital in excess of par (common) of $? .
The same company is also authorized by its charter to sell 1,000 shares of preferred stock with a par value of $20 per share. The minimum price for which this stock could be sold under normal circumstances is $? . On November 26, the company issues 333 shares of preferred stock with an 8% dividend rate and a selling price of $22 per share. The company will receive cash of $? . It will record preferred stock in the amount of $? and paid-in capital in excess of par (preferred) of $? .
Explanation / Answer
Answer: The minimum price for which this stock could be sold under normal circumstances is $75000 (75000 share*$1).
The company will receive cash of $510000 (30000*17). It will record common stock in the amount of $30000 (30000 share*$1). and paid-in capital in excess of par (common) of $480000 (30000 share*$16).