In 20XX, a firm sold 200,000 shares of $1 par common stock and received $5 per s
ID: 2735821 • Letter: I
Question
In 20XX, a firm sold 200,000 shares of $1 par common stock and received $5 per share. Based on the December 31, 20XX balance sheet information shown below, what are the new balance sheet values after the transaction?
$ 1,000,000
5,000,000
15,000,000
Common Stock: $1,000,000; Additional Paid-in Capital: $5,000,000; Retained Earnings: $16,000,000
Common Stock: $2,000,000; Additional Paid-in Capital: $5,000,000; Retained Earnings: $15,000,000
Common Stock: $1,000,000; Additional Paid-in Capital: $6,000,000; Retained Earnings: $15,000,000
Common Stock: $1,200,000; Additional Paid-in Capital: 5,800,000; Retained Earnings: $15,000,000
Common Stock$ 1,000,000
Additional Paid-in Capital5,000,000
Retained Earnings15,000,000
Explanation / Answer
Answer is d.
Since the face value of share is $1 and sold for $5. We are getting $4 additional paid-in capital on each share.
So, the Common Stock will be increase by $200,000 and Additional Paid-in Capital will increase by $800,000. But there will not be any change in Retained Earning.
So, the new Balance sheet will be look like :
Common Stock 1,200,000 Additional Paid-in Capital 5,800,000 Retained Earning 15,000,000