ExpertMedium1 markMultiple Choice
CPA · Question 25 · Area II: Balance Sheet Accounts
A company issues 10,000 shares of $10 par value common stock and 5,000 shares of $50 par value preferred stock for a lump sum of $450,000. <br/><br/>The common stock has a market value of $20/share. The preferred stock has a market value of $60/share. <br/><br/>What amount should be credited to Additional Paid-In Capital (APIC) - Common Stock?
A company issues 10,000 shares of $10 par value common stock and 5,000 shares of $50 par value preferred stock for a lump sum of $450,000. <br/><br/>The common stock has a market value of $20/share. The preferred stock has a market value of $60/share. <br/><br/>What amount should be credited to Additional Paid-In Capital (APIC) - Common Stock?
Answer options:
A.
$180,000
B.
$100,000
C.
$80,000
D.
$200,000
How to approach this question
1. Determine total MV of both classes. 2. Calculate percentage of total MV for Common. 3. Allocate lump sum proceeds. 4. Subtract Par Value from allocated proceeds to find APIC.
Full Answer
C.$80,000✓ Correct
1. **Market Values:**<br/> Common: 10,000 * $20 = $200,000.<br/> Preferred: 5,000 * $60 = $300,000.<br/> Total MV = $500,000.<br/>2. **Allocation:**<br/> Common % = 200/500 = 40%.<br/> Allocated Proceeds to Common = 40% * $450,000 (Lump Sum) = $180,000.<br/>3. **APIC Calculation:**<br/> Par Value Common = 10,000 * $10 = $100,000.<br/> APIC - Common = Proceeds ($180,000) - Par ($100,000) = $80,000.
Common mistakes
Crediting the full market value; forgetting to subtract par value.
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