To identify: The appropriate debit/credit entry for the issuance of common stock from the given options.
Answer to Problem 1QC
c. credit to common stock for $30,000
Explanation of Solution
Common stock: These are the ordinary shares that a corporation issues to the investors in order to raise funds. In return, the investors receive a share of profit from the profits earned by the corporation in the form of dividend.
Par value: It refers to the value of a stock that is stated by the corporation’s charter. It is also known as face value of a stock.
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
Cash (1) | 330,000 | ||
Common Stock (2) | 30,000 | ||
Paid-in Capital in Excess of Par value –Common stock (3) | 300,000 | ||
(To record issuance stock for cash) |
Table (1)
Working note:
Compute the amount of cash received.
Compute common stock value.
Compute paid-in capital in excess of par-common value.
- Cash is an asset account. The amount has increased because cash is received by issuing shares; therefore, debit Cash account with $330,000.
- Common Stock is a
stockholders’ equity account and the amount has increased due to issuance of common stock. Therefore, credit Common Stock account with $30,000. - Paid–in Capital in Excess of Par–Common is a stockholders’ equity account and the amount has increased due to increase in capital. Therefore, credit Paid–in Capital in Excess of Par–Common account with $330,000.
Option a:
“Option a” is not correct, because issuance of stock debits cash account but not common stock account.
Option b:
“Option b” is not correct, because credit amount of paid-in capital in excess of par must be $300,000 but not $330,000.
Option c:
“Option c” is correct, issuance of common stock credits common stock account for $30,000.
Option d:
“Option d” is not correct, because option a is not correct, even if option b is correct.
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