CPA Exam - FAR (Financial Accounting and Reporting)Select TransactionsEasy
A company issues 1,000 shares of $1 par value common stock for $25 per share. Concurrently, the company also issues 500 shares of $50 par value preferred stock for $60 per share. What is the total amount that should be credited to the 'Additional Paid-in Capital - Common Stock' account?
- A$5,000
- B$0
- C$25,000
- D$24,000
Show answer & explanationAnswer & explanation
Correct answer: D. $24,000
Additional Paid-in Capital (APIC) for common stock is the amount received above the par value of the common stock. For common stock, the issue price is $25 per share, and the par value is $1 per share. So, the APIC per common share is $25 - $1 = $24. For 1,000 common shares, the total APIC for common stock is $24 * 1,000 shares = $24,000. The preferred stock issuance affects preferred stock accounts and does not impact the common stock APIC.
Why the other options are wrong
- A. This is an incorrect calculation, possibly confusing par value with APIC.
- B. This would only be true if the common stock was issued at par value.
- C. This represents the total cash received for common stock, not just the APIC.
Additional Paid-in Capital (APIC)
The amount of shareholders' equity that results from the issuance of stock at a price higher than its par value.
- Represents the excess of issue price over par value.
- Credited when stock is issued for more than par.
- Separate APIC accounts typically maintained for common and preferred stock.
Memory trick: Stock's Debut: Par to Capital, Excess to APIC's Vault.