Question

A company acquires 1,000 shares of its own $1 par common stock for $15 per share. This purchase would be recorded with a: Select one: A. Debit to Additional Paid-In Capital for $14,000 B. Credit to Treasury Stock for $1,000 C. Debit to Treasury Stock for $15,000 D. Credit to Treasury Stock for $15,000.

Answer 1

Answer:

A) Debit to Additional Paid-In Capital for $14,000

Explanation:

When a company sells or rebuys stock it must record the transaction at par value in the Common Stock account. Any additional money received or paid in excess of par value has to be recorded in the Additional Paid-In Capital account.

In this case since the company paid an extra $1,400 for 1,000 shares, that amount has to be debited from the Additional Paid-In Capital account. Since this account is an asset account and it is decreasing, it has to be debited.