Hiro Corp.issues 1,000 €5 par value ordinary shares and 1,000 €20 par value preference shares for a lump sum of €60,000.At the issue date, the ordinary shares were selling for €36 and the preference shares were selling for €28.How much is recorded in Hiro's statement of financial position for the preference shares?

Question

Quizplus · Accepted Answer

The lump sum received for the 1,000 ordinary shares and 1,000 preference shares is €60,000. 
To determine the value of the preference shares: 
Preferences shares = (Total lump sum - (number of ordinary shares x market value of ordinary shares)) / number of preference shares 
Preferences shares = (€60,000 - (1,000 x €36)) / 1,000 
Preferences shares = €24,000 / 1,000 
Preferences shares = €24 
The preference shares have a par value of €20, so the total recorded in the statement of financial position for preference shares is: 
Total preference shares = number of preference shares x par value 
Total preference shares = 1,000 x €20 
Total preference shares = €20,000 
Therefore, the answer is C) €26,250 (€20,000 in par value and €6,250 in share premium [(1,000 x €28) - €20,000]).

Hiro CorpIssues 1,000 €5 Par Value Ordinary Shares and 1,000 €20