Question

Share issue costs refer to the costs of obtaining the legal, promotional, and accounting services necessary to effect the sale of shares. The costs reduce the net cash proceeds from selling the shares and thus paid-in capital - excess of par, and are

A) Recorded as an asset on the balance sheet
B) Deducted from retained earnings
C) Added to the par value of the shares
D) Deducted from paid-in capital - excess of par

Answer 1

Share issue costs reduce the net cash proceeds and should be deducted from paid-in capital - excess of par on the company's financial statements.

Step-by-step explanation:

Share issue costs refer to the expenses incurred when a company issues new shares, including legal, promotional, and accounting fees. These costs reduce the net cash proceeds from selling the shares and are accounted for in the company's financial statements. The appropriate treatment for share issue costs is to deduct them from paid-in capital - excess of par. This reflects the actual costs of issuing the shares and provides a transparent picture of the financial transaction to investors and other stakeholders.