Answered: State what is this amount above par…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Brianna and Britney are two sisters opening a clothing store with no other competition within the area. Both Brianna and Britney believe they will gain great profits in the first year, providing them with the ability to sell franchises in the future. They can start the business as a partnership, however it is believed that cash flow will be an issue as they expand in the future, thus they feel as though a corporate form of the business is best.

Assume the corporate is formed and it sets a par value for its shares low and issue common stock for a price above par.

1. State what is this amount above par called?

2. Determine if this amount will be considered a gain, income, or profit? State reasons for your answers.

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