Question

Clothing Emporium was organized on January 1, 2021. The firm was authorized to issue 190,000 shares of $7 par value common stock. During 2021, Clothing Emporium had the following transactions relating to stockholders' equity:Issued 57,000 shares of common stock at $9 per share.Issued 38,000 shares of common stock at $10 per share.Reported a net income of $190,000.Paid dividends of $95,000.What is total paid-in capital at the end of 2021?a)$988,000.b)$1,083,000.c)$798,000.d)$893,000.

Answer 1

Answer:

Option D: $893,000 is the amount of total paid in capital

Explanation:

Paid in capital is defined as the amount of cash received by the company in exchange for issuance of its common stock. Paid in Capital includes value of shares issued at par plus the amount received in excess of Par value (i.e. share premium)

Transaction                No. of Shares    Issue Value         Paid in Capital

Issued common stock       57,000 ×          $9            =          $513,000  

Issued common stock       38,000 ×           $10          =         $380,000      

Total                               95,000                                          $893,000  

Please note that authorized share capital in not considered in the calculation of paid in capital as Authorized share capital only denotes the maximum share capital that a company is allowed to raise.