Question

Danley Corporation began business by issuing 100,000 shares of $5 par value common stock for $24 per share. During its first year, the corporation sustained a net loss of $20,000. The year-end balance sheet would show ______.

Answer 1

Since we are not given a lot of information, we can prepare a simple balance sheet for Danley Corporation:

Total Assets Liabilities and Shareholder Equity

Cash $2,380,000 Common Stock $500,000

Capital Paid-in Excess of Par Value $1,900,000

Accumulated Losses ($20,000)

When a company issues new stock, it has to record them at par value (or book value), any amount of money paid over par value must be recorded in the capital paid-in excess of par value account.