Question

If Wayne Company issues 2,034 shares of $7 par value common stock for $176,339, the account "Paid-in Capital in Excess of Par" would be credited for what amount? Explain the rationale behind the calculation and how this transaction impacts the company's financial position.

Answer 1

The account "Paid-in Capital in Excess of Par" would be credited for $162,101. This transaction increases the company's financial position by increasing its paid-in capital.

Step-by-step explanation:

Paid-In Capital is the amount of money that investors have paid for shares in the company. Additional Paid-In Capital is the difference between the par value of the shares and the actual price of the shares.

This reflects only shares bought directly from the company rather than on the stock market.

The account "Paid-in Capital in Excess of Par" would be credited for an amount of $170,057.

The calculation is as follows:

Calculate the par value of the shares issued:

$7 x 2,034 shares = $14,238

Subtract the par value from the total amount received:

= $176,339 - $14,238

= $162,101

The remaining amount is the excess of the par value, which is credited to the "Paid-in Capital in Excess of Par" account: $162,101

This transaction increases the company's financial position by increasing its paid-in capital. It represents the additional value that shareholders have contributed to the company beyond the par value of the stock.