Question

Mary Martin, the owner of Martin Consulting, Inc., started the business by investing $48,000 cash. Identify the general journal entry below that Martin Consulting, Inc. will make to record the transaction.
A

Cash 48,000
Increased Equity 48,000
B

Investments 48,000
Cash 48,000
C

Cash 48,000
Common stock 48,000
D

Common stock 48,000
Cash 48,000
E

Investments 48,000
Common stock 48,000
Expert Answer

Answer 1

Answer:

The correct option is C.

Cash                               48,000

Common stock                                        48,000

Explanation:

When the owner of a business introduces or invests cash into his own company, it is regarded as a capital or common stock.

The cash invested is therefore recorded in the owner's equity account or as a common stock in order to the stake of the owner in the business. That is, the equity or common stock account show the amount of the assets of the company that are owned by the owner but not by the creditors.

The investment of $48,000 in Martin Consulting, Inc. by Mary Martin, the owner, implies that Martin Consulting, Inc. receives cash from the owner and this will be recorded in the Common Stock of owner.

Therefore, the account the general journal entry to be made in the book of Martin Consulting, Inc. to record this transaction is as follows:

Debit Cash for $48,000

Credit Common stock for $48,000

This will appear as follows:

Particulars                              Dr ($)               Cr ($)        

Cash                                     48,000

     Common Stock                                     48,000

(To record cash investment by the owner.)                            

Therefore, the correct option is C.