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A corporation issues 1,000 ordinary shares of $10 par value to an engineer for services when the shares' fair market value is $12 per share. What is the credit to share premium?
A$10,000
B$12,000
C$2,000
D$1,000
Answer & Solution
Correct answer: C. $2,000
1. The service is recorded at the shares' fair value: $12 \times 1{,}000 = \$12{,}000$.
2. Share capital is credited at par: $10 \times 1{,}000 = \$10{,}000$.
3. Share premium = total − par = $12{,}000 − \$10{,}000 = \$2{,}000$.
4. The $2,000 represents the $2-per-share excess over par.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §6.4 "Issuing Stock for Non-Cash Assets", p.250_
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