Financial Accounting Quiz: Common Stock Issuance
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Common Stock IssuanceQuestion 1 of 20

Pavo Corp. acquired a building by issuing 200,000 shares of its $5 par value common stock and assuming an existing mortgage of $300,000 on the property. On the date of the transaction, the fair value of the common stock was $8 per share. For what amount should Pavo credit Additional Paid-in Capital?

$300,000
$600,000
$900,000
$1,600,000
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Financial Accounting Quiz

Financial Accounting Quiz: Common Stock Issuance

Practice Common Stock Issuance in Financial Accounting with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Common Stock Issuance, giving you a quick way to practice the rules, question types, and explanations that matter most for Financial Accounting.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

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Question 1

Pavo Corp. acquired a building by issuing 200,000 shares of its $5 par value common stock and assuming an existing mortgage of $300,000 on the property. On the date of the transaction, the fair value of the common stock was $8 per share. For what amount should Pavo credit Additional Paid-in Capital?

  1. $300,000
  2. $600,000 (correct answer)
  3. $900,000
  4. $1,600,000
Explanation: The Additional Paid-in Capital (APIC) is the excess of the fair value of the stock issued over its par value. The assumed mortgage affects the total cost of the asset acquired but does not directly enter the APIC calculation for the stock. \n
  1. Calculate the total fair value of the stock issued: 200,000 shares * $8/share = $1,600,000.
  2. Calculate the total par value of the stock issued: 200,000 shares * $5/share = $1,000,000.
  3. Calculate the credit to APIC: Fair Value of Stock - Par Value of Stock = $1,600,000 - $1,000,000 = $600,000. \n\nThe full journal entry would be: Debit Building $1,900,000; Credit Mortgage Payable $300,000; Credit Common Stock $1,000,000; Credit APIC $600,000.

Question 2

Helio Corporation is authorized to issue 2,000,000 shares of $1 par value common stock. On March 15, Helio issued 100,000 shares of this stock for cash at a price of $18 per share. What is the total amount that should be credited to the Additional Paid-in Capital account as a result of this transaction?

  1. $100,000
  2. $1,700,000 (correct answer)
  3. $1,800,000
  4. $1,900,000
Explanation: When common stock is issued for cash, the Cash account is debited for the total proceeds. The Common Stock account is credited for the par value of the shares issued, and the Additional Paid-in Capital (APIC) account is credited for the excess of the proceeds over the par value. \n
  1. Total proceeds = 100,000 shares * $18/share = $1,800,000.
  2. Credit to Common Stock = 100,000 shares * $1/share par value = $100,000.
  3. Credit to APIC = Total proceeds - Par value = $1,800,000 - $100,000 = $1,700,000. \n\nThe authorized shares are irrelevant to this specific transaction.

Question 3

On May 1, Corvus Corp. issued 25,000 shares of $2 par value common stock for $20 per share. On August 1, Corvus reacquired 5,000 shares of its own stock for $18 per share, which it holds as treasury stock. On November 1, Corvus issued another 10,000 shares of its common stock for $22 per share. What is the total increase in Additional Paid-in Capital during the year resulting from these stock issuances?

  1. $560,000
  2. $570,000
  3. $660,000
  4. $650,000 (correct answer)
Explanation: The question asks for the increase in APIC from stock issuances. Treasury stock transactions are a separate type of equity transaction and should be ignored for this calculation. \n
  1. May 1 Issuance: \n * Proceeds: 25,000 shares * $20/share = $500,000. \n * Par value: 25,000 shares * $2/share = $50,000. \n * APIC from May 1 issuance = $500,000 - $50,000 = $450,000.
  2. November 1 Issuance: \n * Proceeds: 10,000 shares * $22/share = $220,000. \n * Par value: 10,000 shares * $2/share = $20,000. \n * APIC from November 1 issuance = $220,000 - $20,000 = $200,000.
  3. Total Increase in APIC: $450,000 + $200,000 = $650,000.

Question 4

In its first year of operations, Orion Corp. issued 50,000 shares of $1 par common stock for $10 per share. It paid $40,000 in legal and printing fees related to the issuance. The company's bookkeeper incorrectly recorded these fees as an operating expense, which was closed to Retained Earnings at year-end. All other aspects of the transaction were recorded correctly. What is the effect on the balance sheet accounts of a correcting entry, assuming it is made in the following year?

  1. Decrease Additional Paid-in Capital by $40,000 and increase Retained Earnings by $40,000. (correct answer)
  2. Increase Additional Paid-in Capital by $40,000 and decrease Retained Earnings by $40,000.
  3. Decrease Additional Paid-in Capital by $40,000 and decrease Cash by $40,000.
  4. Increase an intangible asset by $40,000 and increase Retained Earnings by $40,000.
Explanation: Stock issuance costs should reduce Additional Paid-in Capital (APIC), not be expensed. The incorrect entry debited an expense account, which ultimately reduced Retained Earnings. The correct entry would have debited APIC. \n\n* Incorrect State: APIC is overstated by $40,000 (because the debit was not made to it). Retained Earnings is understated by $40,000 (because an expense was incorrectly recorded). \n* Correction: To fix this, APIC must be decreased (debited) by $40,000, and Retained Earnings must be increased (credited) by $40,000 to reverse the prior-period expense. The net effect on total stockholders' equity is zero.

Question 5

Mensa Corp. issued 10,000 shares of its $1 par value common stock to acquire a patent. The patent has no established fair market value. Mensa's stock is very thinly traded, and no reliable market price can be determined. The board of directors, after careful consideration, assigned a value of $75,000 to the patent. What is the credit to Additional Paid-in Capital as a result of this transaction?

  1. $0
  2. $65,000 (correct answer)
  3. $75,000
  4. $10,000
Explanation: When stock is issued for a non-cash asset and neither the stock nor the asset has a readily determinable fair market value, the board of directors may assign a value to the transaction. This board-assigned value is used to record the transaction. \n
  1. Total value of the transaction (debit to Patent) = $75,000.
  2. Credit to Common Stock (par value) = 10,000 shares * $1/share = $10,000.
  3. Credit to Additional Paid-in Capital = Total value - Par value = $75,000 - $10,000 = $65,000.

Question 6

Stratus Corp. issued 5,000 units for a total price of $440,000. Each unit consists of one share of $50 par value preferred stock and two shares of $5 par value common stock. On the issuance date, the market price of the preferred stock was $60 per share, and the market price of the common stock was $20 per share. What amount of the proceeds should be credited to Additional Paid-in Capital—Common Stock?

  1. $126,000 (correct answer)
  2. $176,000
  3. $50,000
  4. $14,000
Explanation: This is a lump-sum issuance that requires allocating the proceeds based on the relative fair market values of the securities (proportional method).
  1. Calculate the total number of common shares issued: 5,000 units * 2 shares/unit = 10,000 shares.
  2. Determine the total fair market value of the securities if sold separately:
    • Preferred: 5,000 shares * $60/share = $300,000.
    • Common: 10,000 shares * $20/share = $200,000.
    • Total FMV = $300,000 + $200,000 = $500,000.
  3. Determine the proportion of total FMV attributable to the common stock: $200,000 / $500,000 = 40%.
  4. Allocate proceeds to the common stock: $440,000 (total proceeds) * 40% = $176,000.
  5. Calculate the par value of the common stock issued: 10,000 shares * $5/share = $50,000.
  6. Calculate the Additional Paid-in Capital for common stock: $176,000 (allocated proceeds) - $50,000 (par value) = $126,000.

Question 7

Cygnus Corp. issued 100,000 shares of its $2 par value common stock for $15 per share. In connection with this issuance, Cygnus incurred $75,000 in underwriter fees and $25,000 in legal fees. What is the net credit to Additional Paid-in Capital from this transaction?

  1. $1,400,000
  2. $1,300,000
  3. $1,200,000 (correct answer)
  4. $1,100,000
Explanation: Stock issuance costs are not expensed; instead, they reduce the net proceeds from the stock sale, thereby reducing the amount credited to Additional Paid-in Capital (APIC). \n\n1. Calculate gross proceeds: 100,000 shares * $15/share = 1,500,000.\n2.CalculategrosscredittoAPIC(beforecosts):(1,500,000. \n2. Calculate gross credit to APIC (before costs): (15 - $2 par) * 100,000 shares = $1,300,000.
  1. Calculate total issuance costs: $75,000 + $25,000 = $100,000.
  2. Calculate net credit to APIC: Gross APIC - Issuance Costs = $1,300,000 - $100,000 = $1,200,000.

Question 8

Aquila Corp. issued 15,000 shares of its true no-par common stock in exchange for consulting services. The services have a readily determinable fair value of $450,000. The board of directors did not assign a stated value to the stock. Which of the following statements correctly describes the accounting for this transaction?

  1. A $450,000 credit should be made to the Common Stock account, with no entry to Additional Paid-in Capital. (correct answer)
  2. A $450,000 credit should be made to Retained Earnings, recognizing the value of the services received.
  3. A credit to Common Stock should be made for an amount determined by the board, and the remainder of the $450,000 to Additional Paid-in Capital.
  4. No entry to equity is made until the stock has an established market price.
Explanation: For true no-par stock (with no stated value), the entire proceeds from the issuance are credited to the Common Stock account. There is no concept of par or stated value to separate the capital into two accounts. The 'proceeds' in a non-cash transaction are measured by the fair value of the asset or service received, which is $450,000. Therefore, the journal entry is a debit to Consulting Expense (or a relevant asset) for $450,000 and a credit to Common Stock for $450,000.

Question 9

Gemini Corp. issues stock with detachable stock warrants. The company issues 1,000 shares of its $50 par value common stock for a total price of $90,000. Each share was issued with one detachable warrant. At the time of issuance, the common stock was trading at $80 per share, and each warrant had a fair market value of $10. What amount should Gemini credit to Additional Paid-in Capital from the issuance of the common stock?

  1. $80,000
  2. $40,000
  3. $35,000
  4. $30,000 (correct answer)
Explanation: When stock is issued with detachable warrants, the proceeds must be allocated between the two securities based on their relative fair market values. \n
  1. Determine the total fair market value: \n * Common Stock: 1,000 shares * $80/share = $80,000. \n * Warrants: 1,000 warrants * $10/warrant = $10,000. \n * Total FMV = $80,000 + $10,000 = $90,000.
  2. Determine the proportion of FMV for the common stock: $80,000 / $90,000 = 8/9.
  3. Allocate the proceeds to the common stock: $90,000 (total proceeds) * (8/9) = $80,000.
  4. Calculate the par value of the common stock: 1,000 shares * $50/share = $50,000.
  5. Calculate the APIC for the common stock: $80,000 (allocated proceeds) - $50,000 (par value) = $30,000.

Question 10

Draco Corp. began the year with a balance of $800,000 in its Additional Paid-in Capital—Common Stock account. The company's common stock has a par value of $1 per share. During the year, the following transactions occurred:

  • March 1: Issued 20,000 shares for cash at $16 per share. Paid $15,000 in stock registration fees for this issuance.
  • June 15: Issued 5,000 shares to its lawyers in settlement of a $95,000 bill for legal services.
  • September 30: Issued 10,000 shares for a piece of equipment. The equipment had a book value of $120,000 on the seller's books but was reliably appraised at a fair value of $190,000.

Based on the information in the passage, what is the balance in Draco Corp.'s Additional Paid-in Capital—Common Stock account on December 31?

  1. $1,370,000
  2. $1,355,000 (correct answer)
  3. $1,285,000
  4. $1,300,000
Explanation: The ending balance is calculated by adjusting the beginning balance for the APIC effects of each transaction. \n
  1. Beginning Balance: $800,000.
  2. March 1 Issuance: Proceeds = 20,000 * $16 = $320,000. Par value = 20,000 * $1 = $20,000. APIC increase = $320,000 - $20,000 = 300,000.\n3.∗∗RegistrationFees:∗∗ThesecostsreduceAPIC.APICdecrease=(300,000. \n3. **Registration Fees:** These costs reduce APIC. APIC decrease = (15,000).
  3. June 15 Issuance: Value of services = $95,000. Par value = 5,000 * $1 = $5,000. APIC increase = $95,000 - $5,000 = $90,000.
  4. September 30 Issuance: Use fair value of the asset received. Value = $190,000. Par value = 10,000 * $1 = $10,000. APIC increase = $190,000 - $10,000 = $180,000.
  5. Ending Balance: $800,000 + $300,000 - $15,000 + $90,000 + $180,000 = $1,355,000.

Question 11

Vela Corp. issued 1,000 'packages' of securities for a total of $1,200,000. Each package contains 10 shares of $2 par common stock and 5 shares of $100 par preferred stock. A reliable market price of $110 per share was available for the preferred stock, but there was no established market for the common stock. What amount should be credited to the Common Stock account?

  1. $20,000 (correct answer)
  2. $650,000
  3. $630,000
  4. $50,000
Explanation: This lump-sum sale requires the incremental method because only one security's fair value is known. The question asks for the credit to the Common Stock account, which is always the par value of the shares issued. \n
  1. Calculate the total number of common shares issued: 1,000 packages * 10 shares/package = 10,000 shares.
  2. Calculate the par value of the common stock issued: 10,000 shares * $2 par/share = $20,000. \n\nThe other calculations (allocating proceeds) are necessary to find APIC, but not the credit to the Common Stock account itself. The total proceeds allocated to common equity would be $1,200,000 - (5,000 preferred shares * $110 FMV) = 650,000,butthisissplitbetweenCommonStock(650,000, but this is split between Common Stock (20,000) and APIC-Common ($630,000).

Question 12

A company's trial balance includes a debit balance of $120,000 in the Subscriptions Receivable—Common Stock account, and credit balances of $40,000 in Common Stock Subscribed and $320,000 in Additional Paid-in Capital. The subscription price was $18 per share. All subscribers have now paid the remaining balance on their subscriptions. What is the correct journal entry to record the issuance of the stock?

  1. Debit Common Stock Subscribed $40,000 and Additional Paid-in Capital $320,000; Credit Common Stock $360,000.
  2. Debit Cash $120,000; Credit Subscriptions Receivable $120,000.
  3. Debit Common Stock Subscribed $40,000; Credit Common Stock $40,000. (correct answer)
  4. Debit Cash $120,000 and Common Stock Subscribed $40,000; Credit Subscriptions Receivable $120,000 and Common Stock $40,000.
Explanation: When subscribed shares are fully paid, two entries are typically needed: one to record the final cash receipt and another to issue the stock. The question asks for the entry to issue the stock. This entry simply reclassifies the equity from 'Subscribed' to 'Issued'. It involves debiting the Common Stock Subscribed account to close it and crediting the Common Stock account. The Additional Paid-in Capital was already recorded at the time of subscription and is not affected by the final issuance entry.

Question 13

On July 1, Nimbus Inc. issued 30,000 shares of its $10 par value common stock in exchange for a parcel of land. On this date, the stock was actively traded at a market price of $22 per share. The land had an appraised value of $690,000 for property tax purposes. What amount should Nimbus credit to Additional Paid-in Capital for this transaction?

  1. $300,000
  2. $360,000 (correct answer)
  3. $390,000
  4. $660,000
Explanation: When stock is issued for a non-cash asset, the transaction should be recorded at the fair market value of the stock issued or the asset received, whichever is more reliably determinable. Since the stock is actively traded, its market price is the more reliable measure. \n
  1. Total value of the transaction = 30,000 shares * $22/share = $660,000. This is the amount debited to Land.
  2. The credit to Common Stock is the par value = 30,000 shares * $10/share = $300,000.
  3. The credit to Additional Paid-in Capital is the excess = $660,000 - $300,000 = $360,000.

Question 14

On January 2, a company's stockholders' equity section was as follows: Common stock, $10 par, 100,000 shares issued and outstanding, $1,000,000; Additional paid-in capital, $4,000,000; Retained earnings, $5,000,000. On March 1, the company issued an additional 20,000 shares of common stock for $35 per share. What is the total amount of paid-in capital immediately after the March 1 issuance?

  1. $5,700,000 (correct answer)
  2. $5,500,000
  3. $10,700,000
  4. $4,500,000
Explanation: Total paid-in capital is the sum of the Common Stock account and the Additional Paid-in Capital account. The transaction increases both of these accounts. \n
  1. Calculate beginning total paid-in capital: $1,000,000 (Common Stock) + $4,000,000 (APIC) = $5,000,000.
  2. Calculate the proceeds from the new issuance: 20,000 shares * $35/share = $700,000.
  3. The entire proceeds from the stock issuance represent an increase in total paid-in capital.
  4. Calculate the new total paid-in capital: $5,000,000 (beginning balance) + $700,000 (from new issuance) = $5,700,000. \n\nRetained earnings are not part of paid-in capital.

Question 15

Juno Corp. issues 20,000 shares of its no-par common stock for cash at $30 per share. The corporation's board of directors assigned a stated value of $5 per share to the stock. Which of the following is the correct journal entry to record this transaction?

  1. Debit Cash $600,000; Credit Common Stock $600,000.
  2. Debit Cash $600,000; Credit Common Stock $100,000; Credit Additional Paid-in Capital $500,000. (correct answer)
  3. Debit Cash $600,000; Credit Common Stock $500,000; Credit Additional Paid-in Capital $100,000.
  4. Debit Cash $600,000; Credit Common Stock $100,000; Credit Retained Earnings $500,000.
Explanation: For no-par stock with a stated value, the stated value is treated in the same manner as par value. \n
  1. The debit to Cash is for the total proceeds: 20,000 shares * $30/share = $600,000.
  2. The credit to Common Stock is for the total stated value: 20,000 shares * $5/share stated value = $100,000.
  3. The credit to Additional Paid-in Capital is the excess of proceeds over the stated value: $600,000 - $100,000 = $500,000.

Question 16

Carina Corp. issued 10,000 shares of its $10 par value common stock upon the conversion of $250,000 face value of its convertible bonds. At the time of conversion, the unamortized premium on the bonds was $15,000, and the fair market value of the common stock was $32 per share. Using the book value method to account for the conversion, what amount should be credited to Additional Paid-in Capital?

  1. $320,000
  2. $220,000
  3. $150,000
  4. $165,000 (correct answer)
Explanation: The book value method records the issuance of stock at the carrying amount (book value) of the converted bonds. No gain or loss is recognized. \n
  1. Calculate the carrying amount of the bonds: Face Value + Unamortized Premium = $250,000 + $15,000 = $265,000. This is the total value assigned to the stock issuance.
  2. Calculate the par value of the common stock issued: 10,000 shares * $10/share = $100,000.
  3. Calculate the credit to Additional Paid-in Capital: Carrying Amount of Bonds - Par Value of Stock = $265,000 - $100,000 = 165,000.\n\nThefairmarketvalueofthestock(165,000. \n\nThe fair market value of the stock (320,000) is ignored under the book value method.

Question 17

Lyra Corp. received subscriptions for 40,000 shares of its $5 par value common stock at a subscription price of $22 per share. At the time of subscription, subscribers paid 40% of the total price, with the remainder due in six months. What amount should Lyra credit to Additional Paid-in Capital on the date the subscriptions are recorded?

  1. $0
  2. $272,000
  3. $408,000
  4. $680,000 (correct answer)
Explanation: When stock is subscribed, the full amount of Common Stock Subscribed and Additional Paid-in Capital is recorded at the time of the subscription, not as cash is collected. A receivable is established for the unpaid amount. \n
  1. Total subscription price = 40,000 shares * $22/share = $880,000.
  2. Total par value to be subscribed = 40,000 shares * $5/share = $200,000.
  3. Total Additional Paid-in Capital = Total price - Total par value = $880,000 - $200,000 = $680,000. \n\nThe journal entry is: Debit Subscriptions Receivable for $880,000, Credit Common Stock Subscribed for $200,000, and Credit Additional Paid-in Capital for $680,000.

Question 18

Meridian Corporation issued 50,000 shares of its $2 par value common stock for $18 per share. The company also incurred $15,000 in direct issuance costs that were paid in cash. What is the net increase in stockholders' equity as a result of this transaction?

  1. $885,000 (correct answer)
  2. $900,000
  3. $800,000
  4. $815,000
Explanation: The net increase in stockholders' equity is calculated as: (50,000 shares × $18 per share) - $15,000 issuance costs = $900,000 - $15,000 = 885,000.Theissuancecostsreducetheamountofadditionalpaid−incapitalrecorded.ChoiceBignorestheissuancecosts.ChoiceCusesonlytheparvalue(885,000. The issuance costs reduce the amount of additional paid-in capital recorded. Choice B ignores the issuance costs. Choice C uses only the par value (2 × 50,000). Choice D incorrectly adds the issuance costs instead of subtracting them.

Question 19

Pacific Industries issued 20,000 shares of common stock with $2 par value in a public offering. The stock was sold to underwriters for $22 per share, and the underwriters sold it to the public for $24 per share. Pacific also paid $18,000 in registration and legal fees. What is Pacific's net cash received from this transaction?

  1. $440,000
  2. $422,000 (correct answer)
  3. $480,000
  4. $462,000
Explanation: Pacific receives cash from the underwriters, not the public. Cash from underwriters = 20,000 × $22 = $440,000. Net cash = $440,000 - $18,000 registration fees = 422,000.ChoiceAignorestheregistrationfees.ChoiceCusesthepublicofferingpriceincorrectly.ChoiceDusespublicpriceminusfees(422,000. Choice A ignores the registration fees. Choice C uses the public offering price incorrectly. Choice D uses public price minus fees (480,000 - $18,000), which is incorrect since Pacific doesn't receive the public price.

Question 20

Coastal Corp. authorized 200,000 shares of $1 par value common stock. On January 15, the company issued 60,000 shares for $12 per share. On March 10, the company issued an additional 40,000 shares for $15 per share. What is the balance in the Common Stock account after both issuances?

  1. $600,000
  2. $1,320,000
  3. $720,000
  4. $100,000 (correct answer)
Explanation: When you encounter stock issuance questions, focus on the distinction between par value and market value. The Common Stock account records only the par value of shares issued, not the total cash received. Let's calculate the Common Stock account balance step by step. On January 15, Coastal Corp. issued 60,000 shares with $1 par value, contributing $60,000 \times \1 = $60,000 to the Common Stock account. On March 10, they issued 40,000 additional shares at $1 par value, adding $40,000 \times \1 = $40,000.ThetotalCommonStockaccountbalanceis. The total Common Stock account balance is $60,000 + $40,000 = $100,000$$. Answer A ($600,000) incorrectly calculates 60,000 shares times the 10premiumfromthefirstissuance(10 premium from the first issuance (12 - 1).AnswerB(1). Answer B (1,320,000) represents the total cash received from both issuances: (60,000×$12)+(40,000×$15)=$720,000+$600,000(60,000 \times \$12) + (40,000 \times \$15) = \$720,000 + \$600,000. This confuses cash received with the Common Stock account balance. Answer C ($720,000) only accounts for the total cash from the first issuance, ignoring the second transaction entirely. Remember that stock issuances create two separate accounting effects: the Common Stock account records par value only, while any amount received above par value goes to Additional Paid-in Capital. Always multiply the number of shares by the par value—not the issuance price—when calculating the Common Stock account balance.