Question

The Vernon Corporation was formed on January 2, 2018. The company sold 20,000 shares of $8.00 par value stock for $20.00 per share. On July 1, 2018, Vernon bought back 4,000 shares of stock for $24.00 per share. The treasury stock was resold on September 1, 2018 for $32.00 per share.
Which one of the following is the entry to record the original sale of the stock?
A) DR Cash 400,000 CR Common stock 160,000 CR Paid-in capital in excess of par 240,000
B) DR Cash 400,000 CR Common stock 240,000 CR Paid-in capital in excess of par 160,000
C) DR Common stock 240,000 DR Paid-in capital in excess of par 160,000 CR Cash 400,000
D) DR Common stock 160,000 DR Paid-in capital in excess of par 240,000 CR Cash 400,000

Answer 1

Answer:

Option (A) is correct.

Explanation:

The Journal entry is as follows:

Cash A/c Dr. $400,000

   To common stock A/c       $160,000

   To Paid-in capital in excess of par A/c $240,000

(To record the original sale of the stock)

Workings:

Cash = Number of shares sold × Selling price of each share

        = 20,000 × $20

        = $400,000

Common stock = Number of shares sold × Par value

                         = 20,000 × $8

                         = $160,000

Paid-in capital in excess of par = $400,000 - $160,000

                                                   = $240,000