Final answer:
Sanderson Co. should record $13M as paid-in capital from the issuance of bonds and common stock, since it represents the excess of total proceeds over the separate value of the bonds.
Step-by-step explanation:
The question concerns how Sanderson Co. should record paid-in capital from a combined sale of bonds and common stock. Since the market value of Sanderson's stock cannot be determined, we can only consider the known values for the bonds and the total cash amount received. If the bonds alone would have sold for $9M, and the total cash received was $22M, the combination of stock and bonds was sold for an amount $13M higher than the bonds alone. Thus, the paid-in capital to be recorded from the transaction is the excess amount of $13M, which is the difference between the total cash received and the value of the bonds.
The reasoning behind this is that the paid-in capital represents the amount of capital from owners a company receives in exchange for its stock. So, when both bonds and stock are issued together in a transaction that exceeds the value of bonds if sold separately, the difference represents the value contributed by shareholders through the purchase of stock. In Sanderson Co.'s case, they received a total of $22M, with the bond value being $9M, so the remaining $13M is attributed to the common stock and is thus the paid-in capital.