Question

A corporation was organized in January 2009 with authorized capital of $10 par value common stock. On February 1, 2012, shares were issued at par for cash. On March 1, 2012, the corporation's attorney accepted 7,000 shares of common stock in settlement for legal services with a fair value of $90,000. Additional paid-in capital would increase on

February 1, 2012 March 1, 2012
a. Yes No
b. Yes Yes
c. No No
d. No Yes

Answer 1

On February 1, 2012, additional paid-in capital does not increase as shares were issued at par. On March 1, 2012, it does increase because the corporation issued shares for legal services with a value exceeding their par value.

Step-by-step explanation:

The question pertains to the impact on additional paid-in capital when a corporation issues shares at par value and when it issues shares in exchange for services. On February 1, 2012, shares were issued at par, which means they were sold for their face value of $10 each. Since they were issued at par, there would be no additional paid-in capital on this date because the cash received equals the par value of the stock.

On March 1, 2012, however, the corporation issued 7,000 shares for legal services valued at $90,000. The fair value of the service exceeds the par value of the stock issued ($70,000 calculated as 7,000 shares x $10 par value). The difference between the par value and the fair value of the legal services, which is $20,000 (calculated as $90,000 - $70,000), represents additional paid-in capital and would indeed increase this equity account on the corporation's balance sheet.

Therefore, the correct answer to the question of whether additional paid-in capital would increase on both dates is option 'd. No Yes'