Question

The corporate charter of Alpaca Co. authorized the issuance of 10 million, $1 par common shares. During 2021, its first year of operations, Alpaca had the following transactions:

January 1 sold 8 million shares at $15 per share
June 3 retired 2 million shares at $18 per share
December 28 sold 2 million shares at $20 per share
What amount should Alpaca report as additional paid-in capital—excess of par, in its December 31, 2021, balance sheet?
A. $104 million
B. $6 million
C. $52 million
D. $208 million

Answer 1

Alpaca Co.

The amount that Alpaca should report as additional paid-in capital, in excess of par, in its December 31, 2021 balance sheet is:

= $116 million

Step-by-step explanation:

a) Data and Calculations:

Authorized share capital = 10 million, $1 par common shares

Transactions during the year:

Date Number of shares issued Price Common Stock Additional

January 1 sold 8 million shares at $15 $8 million $112 million

June 3 retired 2 million shares at $18 (2 million) (34 million)

December 28 sold 2 million shares $20 2 million 38 million

Total $10 million $116 million

b) Additional paid-in capital represents the excess capital that is received above the par value of the shares issued. When the retired shares (treasury stock) are accounted for using the cash method, the additional capital is stated less the treasury stock's excess issue value. When the par value method is used, a treasury stock account is created separately so that the two adjustments to the treasury stock account are reflected differently.