Question

Bertram Corporation was organized in January 2012 with authorized capital of 1 par value common stock. On February 1, 2012, shares were issued at par for cash. On March 1, 2012, the corporation's attorney accepted 5,000 shares of common stock in settlement for legal services with a fair value of45,000. Additional paid-in-capital would increase on which date?

1) February 1, 2012
2) March 1, 2012
3) No increase in additional paid-in-capital
4) Cannot be determined

Answer 1

The additional paid-in-capital for Bertram Corporation increases on March 1, 2012, when the attorney accepted 5,000 shares of common stock for legal services valued at $45,000.

Step-by-step explanation:

The additional paid-in-capital would increase on March 1, 2012. This increase occurs because the corporation's attorney accepted 5,000 shares of common stock in settlement for legal services with a fair value of $45,000. Given that the par value is $1 per share, this transaction creates an additional paid-in-capital of $40,000 ($45,000 - $5,000). On February 1, 2012, the shares issued at par for cash would not have created any additional paid-in-capital since they were sold at their par value.

Additional paid-in-capital would increase on March 1, 2012 when the attorney accepted 5,000 shares of common stock in settlement for legal services. The fair value of the shares was $45,000, which is greater than their par value. The difference between the fair value and the par value ($45,000 - $5,000) would be recorded as additional paid-in-capital.