Sanderson Sofas, a family-owned corporation, issued 6.75% bonds with a face amount of $12 million, together with 2 million share
s of its $1 par value common stock, for a combined cash amount of $22 million. The market value of Sanderson's stock cannot be determined. The bonds would have sold for $9 million if issued separately. Sanderson should record for paid-in capital - excess of par on the transaction in the amount of:
The computation of the paid-in capital - excess of par is shown below:
= Combined cash amount - sale value of the bond - share value amount
= $22 million - $9 million - $2 million
= $11 million
The share value amount is computed below:
= 2 million shares × $1
= $2 million
This $11 million would record in the paid-in capital - excess of par.
Since we have to determine this amount so we deducted the sale value and the share value amount from the combined cash amount so that accurate value can come.
