Question

A corporation sold 14,000 shares of its $1 par value common stock at a cash price of $13 per share. The entry to record this transaction would include:

Answer 1

The options to the question are missing. The complete question is,

A corporation sold 14,000 shares of its $1 par value common stock at a cash price of $13 per share. The entry to record this transaction would include:

A: A credit to common stock for $14000

B. A debit to common stock for $14000

C. A credit to common stock $ 10000

D. A debit to common stock $ 10000

Answer:

Option A. credit to common stock for $14000 is the correct answer.

The entry to record this issuance of shares is,

Cash                                                                              $182,000 Dr

    Common Stock                                                                $14,000 Cr    

    Paid in capital in excess of par- Common Stock         $168,000 Cr

Explanation:

To record the issuance of common stock against cash, we simply debit the cash account as the asset, Cash, is increasing due to the issuance of stock. We increase the cash account by the amount of cash received.

The cash received here is = 14000 * 13  =  $182000

The issuance of common stock, whose nature is capital, is recorded by a credit to Common Stock account by the value of the number of common stock issued multiplied by their par value.

Common Stock = 14000 * 1 = $14000

The value received for common stock above their par value is recorded in a separate account which is known as Paid in capital in excess of par- Common Stock. This is a reserve account and is capital in nature. Thus, it is also credited.

Paid in Capital in excess of par- Common Stock = 14000 * 12 = $168000