Lanier Tech
This company was incorporated as a new business on January 1, 2019. The company is authorized to issue 50,000 shares of $5 par common stock and 10,000 shares of 6%, $10 par, cumulative, participating preferred stock. On January 1, 2019, the company issued 8,000 shares of the common stock for $15 per share and 2,000 share of the preferred stock for $30 per share. Net income for the year ended December 31, 2019 was $375,000.
-Refer to Lanier Tech. What is the amount of the company's total capital stock at December 31, 2019?

Question

Quizplus · Accepted Answer

To calculate the amount of the company's total capital stock at December 31, 2019, we need to consider both the common stock and the preferred stock that were issued.
For the common stock:
The company issued 8,000 shares at a $5 par value. The par value is the nominal value of the stock, which is the minimum amount the stock can be recorded at in the company's accounting records.
8,000 shares * $5 par value = $40,000
However, the common stock was issued at $15 per share, which is above the par value. This means there is an additional paid-in capital over par value for the common stock, but this excess is not considered part of the "capital stock" amount. It is recorded separately in the equity section of the balance sheet as additional paid-in capital.
For the preferred stock:
The company issued 2,000 shares at a $10 par value.
2,000 shares * $10 par value = $20,000
Again, the preferred stock was issued at $30 per share, which is above the par value. Like with the common stock, the excess over par value is not included in the "capital stock" amount.
Now, we add the par value of the common stock and the preferred stock to get the total capital stock:
$40,000 (common stock) + $20,000 (preferred stock) = $60,000
Therefore, the amount of the company's total capital stock at December 31, 2019, is $60,000.
The correct answer is:
a. $60,000

Lanier Tech This Company Was Incorporated as a New Business on January