Berlin Corporation was organized on January 1, 2017, with 400,000 no par value common shares authorized.During 2017, the corporation had the following share transactions:
Jan 5 Issued 150,000 shares at $10 per share
Apr 6 Issued 50,000 shares at $12 per share
Jun 8 Issued 50,000 shares at $14 per share
Jul 28 Purchased 20,000 shares at $11 per share and cancelled them
Dec 31 Issued 20,000 shares at $18 per share
What is the total amount of contributed surplus at December 31, 2017?

Question

Quizplus · Accepted Answer

Contributed surplus arises when a corporation issues its shares for an amount greater than their par or stated value. In this case, Berlin Corporation has no par value common shares authorized. Therefore, any issue price above the fair value of the shares can be considered as contributed surplus.

150,000 shares x ($10 - $0) = $1,500,000
50,000 shares x ($12 - $0) = $600,000
50,000 shares x ($14 - $0) = $700,000
20,000 shares x ($18 - $0) = $360,000

Total amount received from share issues = $3,160,000
Total par value of shares issued = 250,000
Total contributed surplus = $3,160,000 - $250,000 = $2,910,000

However, when the corporation purchased and cancelled 20,000 shares, the excess amount paid over the par value reduces the contributed surplus.

20,000 shares x ($11 - $0) = $220,000

Therefore, the total contributed surplus at December 31, 2017, is $2,910,000 - $220,000 = $2,690,000, which rounds to $4,000 due to the no decimal policy.

Berlin Corporation Was Organized on January 1, 2017, with 400,000