What should be recorded in a Planet's additional paid-in capital account for this business combination

Planet Co. issues 300,000 shares of $4 par value common stock to acquire Star Co. in a business combination. The market value of Planet's common stock is $16. Planet incurs legal and appraisal fees of $100,000 with the combination and stock issue costs of $40,000. What should be recorded in a Planet's additional paid-in capital account for this business combination.

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Expert Solution

Fair value - ( 300,000 shares x $ 16/ share) = $ 4,800,000

Par value - ( 300,000 shares x $ 4 / share ) = $ 1,200,000

Gross Additional Paid-in Capital = $ 4,800,000 - $ 1,200,000 = $ 3,600,000

Less: Issuance Costs - $ 40,000

Net additional paid-in capital - $ 3,560,000

The legal and appraisal fees ($100,000) were paid in cash and would be expensed in the period incurred. The registration and issuance costs of the common stock are properly deducted from the additional paid-in capital derived from the issuance of the stock.

Additional Paid-In Capital: $3,560,000

Soumik Mallick Choudhury answered 1 year ago

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