Question

Olsson Corporation received a check from its underwriters for $72 million. This was for the issue of one million of its $5 par stock that the underwriters expect to sell for $72 per share. Which is the correct entry to record the issue of the stock

Answer 1

Answer:

Debit Cash for $72,000,000

Credit Common Stock for $5,000,000

Credit Paid in capital in excess of par for $67,000,000

Explanation:

The correct entry will be look as follows:

Account Name                                             Dr ($)                      Cr($)          

Cash                                                        72,000,000

  Common Stock (w.1)                                                              5,000,000

  Paid in capital in excess of par (w.2)                                  67,000,000

(To record the issue of one million of $5 par stock.)                                      

Wokings:

w.1: Commons stock = 1,000,000 * $5 = $5,000,000

w.2: Paid in capital in excess of par = Amount received from underwriter - Common stock = $72,000,000 - $5,000,000 = $67,000,000