Q20E - Horngren'S Financial And Managerial Accounting

Question

Determining paid-in capital for a corporation

Aruba Corporation recently organized. The company issued common stock to an inventor in exchange for a patent with a market value of \(57,000. In addition, Aruba received cash for 6,000 shares of its \)10 par preferred stock at par value and 6,500 shares of its no-par common stock at $20 per share. Without making journal entries, determine the total paid-in capital created by these transactions.

Step-by-Step Solution

Answer

The total paid-in capital created by the mentioned transactions is $247,000

Step 1: Basic Introduction

Common stock in patent exchange:$57,000

 $\begin{array}{c}\mathrm{PreferredStockValue}=\mathrm{NumberofShares}\times \mathrm{ParValue}\\ =6,000\times \$10\\ =\$60,000\end{array}$

 $\begin{array}{c}\mathrm{CommonStock}=\mathrm{NumberofShares}\times \mathrm{ParValue}\\ =6,500\times \$20\\ =\$130,000\end{array}$

Step 2: Total paid-in capital

$\begin{array}{c}\mathrm{Totalpaid}-\mathrm{incapital}=\mathrm{Commonstockinpatentexchange}+\mathrm{preferredstockvalue}+\mathrm{commonstockissued}\\ =\$57,000+\$60,000+\$130,000\\ =\$247,000\end{array}$