Berlin Corporation was organized on January 1, 2020, with 400,000 no par value common shares authorized. During 2020, 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, 2020?
A) $ 0
B) $ 4,000
C) $ 20,000
D) $ 220,000

Question

Quizplus · Accepted Answer

Contributed surplus is the excess amount received from the issuance of shares above the par value or stated value of the shares. In this case, there is no par value or stated value for the shares, and therefore, any excess amount received is considered as contributed surplus.

The total amount of contributed surplus can be calculated by adding the excess amount received from the issuance of shares as follows:

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 contributed surplus = $1,500,000 + $600,000 + $700,000 + $360,000 = $3,160,000

However, since the corporation purchased and cancelled 20,000 shares, the contributed surplus needs to be reduced by the amount of excess received from these shares as well.

20,000 shares x ($11 - $0) = $220,000 
Total contributed surplus at December 31, 2020 = $3,160,000 - $220,000 = $2,940,000

Therefore, the correct answer is B) $4,000.

Berlin Corporation Was Organized on January 1, 2020, with 400,000