Question

Berry Corporation has 100,000 shares of $10 par common stock authorized. The following transactions took place during 2017, the first year of the corporation's existence: Sold 20,000 shares of common stock for $13.50 per share. Issued 20,000 shares of common stock in exchange for a patent valued at $300,000. At the end of the Berry's first year, total paid-in capital amounted to

Answer 1

$570,000

Explanation:

The computation of total paid-in capital is shown below:-

Common stock issued for cash

Cash Dr, $270,000 (20,000 × $13.50)

To Common Stock $200,000 (20,000 × $10)

To Additional paid in capital $70,000 (20,000 × ($13.50 - $10)

(Being common stock issued for cash is recorded)

Common stock issued for patent

Patent (FMV of patent) Dr, $300,000

To Common Stock $200,000 (20,000 × $10)

To Additional paid in capital $100,000 (20,000 × $10 ÷ 2)

(Being common stock issued for patent is recorded)

For recording this two entries we debited the cash as it rise assets and at the same time it also rise the overall stockholder equity so common stock and the additional paid in capital for common stock is credited

So,

Total paid in capital = Common Stock + Additional paid in capital

= ($200,000 + 200,000) + ($70,000 + $100,000)

= $400,000 + $170,000

= $570,000