A company issued 150 shares of $ 100 par value stock for $ 34,000 cash. The total amount of paid-in capital in excess of par is:
$100
$ 1,500
$ 19,000
$ 15,000
$ 34,000
The correct answer and explanation is :
The correct answer is $19,000.
Explanation:
When a company issues shares, it can sell them at a price higher than their par value. The difference between the selling price (issue price) and the par value is called paid-in capital in excess of par or additional paid-in capital (APIC).
Step 1: Calculate the Total Par Value
Each share has a par value of $100, and the company issued 150 shares.
[
\text{Total Par Value} = 150 \times 100 = 15,000
]
Step 2: Determine the Total Cash Received
The company issued the 150 shares for $34,000 in total.
Step 3: Compute the Paid-in Capital in Excess of Par
The paid-in capital in excess of par is calculated as:
[
\text{Total Cash Received} – \text{Total Par Value}
]
[
34,000 – 15,000 = 19,000
]
So, the additional paid-in capital (APIC) is $19,000.
Understanding the Concept
- Par Value is the minimum price assigned to a share by the company, often set at a low amount. It does not reflect the market value.
- Issue Price is the actual price at which shares are sold to investors. It can be higher than the par value.
- Paid-in Capital in Excess of Par represents the extra amount investors pay over the par value, which goes into the company’s equity.
Answer Choice Analysis
- $100 – Incorrect (this is too small).
- $1,500 – Incorrect (miscalculated).
- $19,000 – Correct (as shown in the calculations).
- $15,000 – Incorrect (this is the total par value, not the excess capital).
- $34,000 – Incorrect (this is the total cash received, not the excess capital).
Thus, the correct answer is $19,000.