Question

When common stock is issued by a corporation for a cash price above par value, the excess of the cash proceeds over the par value should be reported in the financial statements as a component of: Select one: a. Retained earnings on the balance sheet b. Total liabilities on the balance sheet c. Operating income on the income statement d. Total contributed capital on the balance sheet

Answer 1

Answer: d. Total contributed capital on the balance sheet

Explanation:

When Common stock is issued this is known as a Paid-In Capital. If there is an excess over the par value, this will be an additional amount and so will be recorded in the Additional Paid-In Capital account.

This account is on the Equity side of the balance sheet and will form part of the capital contribution to the company because it was given to the company by shareholders.