Question

The corporate charter of Pharaoh Tent Co. authorized the issuance of 6 million, $1 par common shares. During 2018, its first year of operations, Pharaoh had the following transactions: February 4 sold 4 million shares at $15 per share October 12 retired 1 million shares at $18 per share December 30 sold the 1 million shares at $20 per share What amount should Pharaoh report as additional paid-in capital in its December 31, 2018, balance sheet?

Answer 1

Answer:

$58,000,000

Explanation:

the journal entries should be:

February 4, 4 million shares sold:

Dr Cash 60,000,000

    Cr Common stock 4,000,000

    Cr Additional paid in capital 56,000,000

October 12, 1 million shares repurchased:

Dr Treasury stock 18,000,000

    Cr Cash 18,000,000

Treasury stock is a contra equity account that lowers shareholders' equity, and is reported at the end of the balance sheet. When you repurchase stock, you must record the full value of the transaction under treasury stock since it doesn't result in gains or losses.

December 30, treasury stocks are sold again:

Dr Cash 20,000,000

    Cr Treasury stock 18,000,000

    Cr Additional paid in capital 2,000,000    

The credit balance of additional paid in capital account = $56,000,000 + $2,000,000 = $58,000,000

Answer 2

Answer:

$61 million

Explanation:

Additional paid-in capital credited on Feb 4 = Number of shares sold × (Share selling price - Share par value) = 4 million × ($15 - $1) = $56 million

Worth of shares debited on October 12 = Number of shares retired × (Share original selling price - Share par value) = 1 million × ($15 - $1) = $14 million

Additional paid-in capital credited on December 30 = Number of shares sold × (Share selling price - Share par value) = 1 million × ($20 - $1) = $19 million

Net additional paid-in capital = $56 million - $14 million + $19 million = $61 million