Please show me how to calculate Paid-in capital in excess of par-preferred & paid-in capital in excess of par-common for the following problem:

Paid-in capital:
Preferred stock, 6%, $50 par, 2,000 shares authorized, 2,000 shares issued = $100,000
Paid-in capital in excess of par-preferred = ?
Common stock, $1 par, 10,000,000 shares authorized, 2,000,000 shares issued=2,000,000Paid-in capital in excess of par-common = ?
Total paid-in capital = 21,105,000

Can you please post how did you solve the problem? We will surely help you out by suggesting corrections.

Additional paid-in capital is for the amount received over the par value of your common stock.

for example you issue 10 shares of $20 common stock for $50 a share.
The amount that will go in Common stock is: 10 shares @ $20 or $200
Additional paid-in capital will be: 10 shares @ $50 - $200 or $300

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Originally Posted by pready

Additional paid-in capital is for the amount received over the par value of your common stock.

for example you issue 10 shares of $20 common stock for $50 a share.
The amount that will go in Common stock is: 10 shares @ $20 or $200
Additional paid-in capital will be: 10 shares @ $50 - $200 or $300

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You have a point there but the problem has two classes of shares. Their par value is given but the issue price is not given. The amount of additional paid in capital can only be calculated when the issue price of both classes is given.

There is one answer, though, which may or may not be correct.

Preferred Stock - Par $100,000
Additional paid in capital $5,000
Common Stock - $20,000,000
Additional paid in capital - $1,000,000

If you study the figures carefully, you will see that the additional capital in both cases is 5% of the par values of both classes of stocks.

The total Additional paid-in capital is:
$21,105,000 (given) - $100,000 (par vlaue of preferred stock) - $2,000,00 (par value of common stock) = $19,005,000

I have never seen a problem like this before!! Usually when stock is issued you are given the sales price or the total sales price and preferred and common stock are always listed separately because they are two different types of stock. I would double check the problem because it appears that something is missing from it or it was posted online incorrectly.

The 6% for the preferred stock means that dividends will be paid on this type of stock @ 6% of the par value for each share outstanding and is deducted from the total amount of divedends paid to stockholders. The difference between the total dividends paid and what was paid to preferred stockholders is what is available to be paid to the common stockholders.

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Originally Posted by pready

The total Additional paid-in capital is:
$21,105,000 (given) - $100,000 (par value of preferred stock) - $2,000,00 (par value of common stock) = $19,005,000

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I think there is an error here. The par value of common stock is $20,000,000 and not $2,000,000. Hence the additional paid in capital is $1,005,000

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I have never seen a problem like this before!! Usually when stock is issued you are given the sales price or the total sales price and preferred and common stock are always listed separately because they are two different types of stock. I would double check the problem because it appears that something is missing from it or it was posted online incorrectly.

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I agree with you. However, the British authors/examiners have a habit of posing such questions. I can quote many such mind boggling questions.

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The 6% for the preferred stock means that dividends will be paid on this type of stock @ 6% of the par value for each share outstanding and is deducted from the total amount of dividends paid to stockholders. The difference between the total dividends paid and what was paid to preferred stockholders is what is available to be paid to the common stockholders.

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Although the question is titled 'stock dividends - Paid in capital in excess' but has no mention of it in the problem, instead the requirement states to calculate the additional paid in capital. Surely, it can not be retained earnings since the problem states 'total paid in capital $21,105,000 and retained earnings is part of stockholders' equity.

The par value is indeed $2,000,000. What pready calculated is correct at 19,005,000. However, we know that is the total excess for both preferred and common. There isn't any way to know how it's split.

rehman, how did you get 20,000,000? And how did you decide excess was 5%? That's completely arbitrary. (For that matter, who says it's a British question?)

RLP - if you haven't figured it out yet, the information necessary to answer isn't there. If it's not in the problem, then something is wrong. Or you left it out. The difficulty is that we don't even know how much stock was sold at any one time and for how much. That is, that could have issued 1000 of preferred on one date at par value, 500 on another date at $60 and 500 on another date at $70. There would be no way to know something like that.

They could over-simplify it and say all the stock was sold at one time, but we still need the price it was sold at. Excess is the amount above the par amount, and you can't know excess unless you know what it was sold for. They could also give you some type of ratio to split between preferred and common. But somehow, there has to be information beyond what you gave us or it's literally impossible.

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Originally Posted by morgaine300

The par value is indeed $2,000,000. What pready calculated is correct at 19,005,000. However, we know that is the total excess for both preferred and common. There isn't any way to know how it's split.

rehman, how did you get 20,000,000? And how did you decide excess was 5%? That's completely arbitrary. (For that matter, who says it's a British question?)

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I am sorry, I did make a mistake in assuming the par value of common stock at $20 million in stead of $2 million.

I did not say that it was a British question. Please read my post again. I had said that However, the British authors/examiners have a habit of posing such questions. I can quote many such mind boggling questions.

The excess of 5% was based on my assumption as follows:
Preferred (105k-100)$5,000/100,000 = 5%
Common (21m - 20m) $1m/ $20m = 5%

In my post I had also said that my answer may or may not be correct.

It would be better if RLP can clarify the matter since the original question is still with him/her.

The example in my accounting book gives the following answers:

Paid-in capital:
Preferred stock, 6%, $50 par, 2,000 shares authorized, 2,000 shares issued = $100,000
Paid-in capital in excess of par-preferred = $5,000
Common stock, $1 par, 10,000,000 shares authorized, 2,000,000 shares issued=2,000,000Paid-in capital in excess of par-common = $19,000,000
Total paid-in capital = 21,105,000
Retained earnings = $9,000,000
Total stockholders' equity = $30,105,000

Please show me the calculations to how the authors (Horngren, Harrison, Oliver) came up with the above answers:
Paid-in capital in excess of par-preferred = $5,000
Paid-in capital in excess of par-common = $19,000,000
Retained earnings of $9,000,000 ? Where did this calculation come from?

As for the retained earnings, they likely just made that part up, just like they made up the par values, shares of stock, etc. They have to make up a certain amount of stuff for the problem. There isn't anything in the information to show where retained earnings might have come from.

Furthermore, there is also nothing in that information to show where they got the $5000 and $19,000,000. Nothing.

It's what we said it is: the amount of issue price above the par value. But the only way you could figure this out is to have every single issuance of stock, or it was all issued at the same time at the same price. They would have to give you those prices to figure it out.

For instance, if par is $10 and you issue 2000 shares at $15, the excess is the $5 over par, x 2000 shares = $10,000. So you have total excess of $10,000. But pready already showed you an example of that. We still don't have the information for this particular example.

I can tell what the average issue prices were, but that doesn't say anything about the individual issuances. This could be part of some long example for all I know.

But there isn't any info you've give us to show how they came up with those particular answers. I stress again they must give you the issue price, and you've never given us that. So the only thing we can do is give examples of how it's done, and two of us have done that now.

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Originally Posted by RLP

The example in my accounting book gives the following answers:

Paid-in capital:
Preferred stock, 6%, $50 par, 2,000 shares authorized, 2,000 shares issued = $100,000
Paid-in capital in excess of par-preferred = $5,000
Common stock, $1 par, 10,000,000 shares authorized, 2,000,000 shares issued=2,000,000Paid-in capital in excess of par-common = $19,000,000
Total paid-in capital = 21,105,000
Retained earnings = $9,000,000
Total stockholders' equity = $30,105,000

Please show me the calculations to how the authors (Horngren, Harrison, Oliver) came up with the above answers:
Paid-in capital in excess of par-preferred = $5,000
Paid-in capital in excess of par-common = $19,000,000
Retained earnings of $9,000,000 ? where did this calculation come from?

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When the example has been answers there must be some reasoning given by the authors. In the absence of complete information as to the issue price of the stocks, it is but natural to assume that the larger portion of the Paid in Capital in excess of par value must represent common stocks.

Your original post did not mention the retained earnings and it has been added now. Retained earnings being a part of the shareholders' equity must be reported as such.

The title of your post mentions 'Stock Dividends - Paid in Capital in excess', whereas the requirement of the question does not mention anything about the stock dividends. I am not sure, but I feel that the question perhaps requires you to calculate the amount of stock dividends that can be paid by the company.

Is it possible for you to please mention the full question as it appears in the book. You may also mention the title of the book and its edition; such Financial accounting 12th edition, etc.

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In the absence of complete information as to the issue price of the stocks, it is but natural to assume that the larger portion of the Paid in Capital in excess of par value must represent common stocks.

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True, since common stock is usually a much higher amount to begin with. But that still doesn't give any clue as to how it would split up between the two, since the method of getting there has absolutely nothing to do with "splitting up" a total amount known to be excess.

OP said it was an example. Since examples generally come with a paragraph of explanation and numbers, my suspicions are that the information needed is in a paragraph somewhere that has been left out by OP and that s/he isn't getting the idea that seeing only this limited info isn't going to help us solve the thing. Meaning, there isn't any way for us to keep speculating about information that is not being given to us.

Furthermore, since the whole idea was figuring out the excess amounts, pready and I both have given examples of where that comes from, and this example is irrelevant to that. As far as I'm concerned, ball is in OP's court cause we can do nothing further.