The equity accounts of Bio-Tech Company is as follows: Suppose that the firm sells 2,000,000 new shares at a price of $20/share. What is the new value of the additional paid-in-capital account?

Question

The equity accounts of Bio-Tech Company is as follows:  Suppose that the firm sells 2,000,000 new shares at a price of $20/share. What is the new value of the additional paid-in-capital account?

Quizplus · Accepted Answer

The additional paid-in-capital account increases when a company issues new shares at a price higher than the par value of the stock. In this case, Bio-Tech Company sells 2,000,000 new shares at a price of $20/share, resulting in a total of $40,000,000 in new equity capital. As all of these shares are sold above par value, the entire $40,000,000 will go to the additional paid-in-capital account. Therefore, the new value of the additional paid-in-capital account will be the current balance of $48,000,000 plus the $40,000,000 from the sale of new shares, which equals $88,000,000. Hence, the correct answer is C ($88,000,000).

The Equity Accounts of Bio-Tech Company Is as Follows