Question

On July 1, 20x5, Cove Corp., a closely-held corporation, issued 6% bonds with a maturity value of $60,000, together with 1,000 shares of its $5 par value common stock, for a combined cash amount of $110,000.The market value of Cove's stock cannot be ascertained. If the bonds were issued separately, they would have sold for $40,000 on an 8% yield to maturity basis.What amount should Cove report for additional paid-in capital on the issuance of the stock?A. $75,000B. $65,000C. $55,000D. $45,000

Answer 1

B. $65,000

Step-by-step explanation:

For computing the additional paid-in-capital, first we have to calculate the net proceeds of the stock which is shown below:

= Cash amount - sale value

= $110,000 - $40,000

= $70,000

Now the total par value is $5,000 (1,000 shares × $5)

So, the additional paid up capital equals to

= Net proceeds - Total par value

= $70,000 - $5,000

= $65,000