=+In late 2008, the attorney and the various regulatory authorities approved the new stock offering, and 100,000 shares of common stock were privately sold to new investors at the stock’s par of $50.

In preparing financial statements for 2008, Cindy Stern and Debra Allen, the controller for Las Animas Inc., have the following conversation:

Allen: Cindy, I’ve got a problem.

Stern: What’s that, Debra?

Allen: Issuing common stock to raise that additional $5 million was a great idea. But...

Stern: But what?

Allen: I’ve got to prepare the 2008 annual financial statements, and I am not sure how to classify the common stock.

Stern: What do you mean? It’s common stock.

Allen: I’m not so sure. I called the auditor and explained how we are contractually obligated to pay the new stockholders 2% of net sales until $50 per share is paid. Then, we may be obligated to pay them $100 per share.

Stern: So ...

(continued)

302 Chapter 8