Question

Clothing Emporium was organized on January 1, 2021. The firm was authorized to issue 180,000 shares of $7 par value common stock. During 2021, Clothing Emporium had the following transactions relating to stockholders' equity: Issued 54,000 shares of common stock at $9 per share. Issued 36,000 shares of common stock at $10 per share. Reported a net income of $180,000. Paid dividends of $90,000. What is total paid-in capital at the end of 2021?

Answer 1

Answer:

$846,000

Explanation:

Paid in capital = Par value of shares + Share premium paid or Additional paid in capital

So,

Par value of total issued shares = (54000 + 36000) * 7 = $630,000

Premium can be calculated as

for 54000 shares = 9 - 7 = $2/share

or 36000 shares = 10 - 7 = $3/share

this gives us a total additional paid in capital of

= (54000 * 2) + (36000 * 3) = $216,000

Paid in capital = 216000 + 630000 = $846,000

Note that capital dividends are deducted from the premium account where as cash dividends are deducted from retained earnings leaving no impact on paid in capital. We are assuming cash dividends.