Question

Comfort Mattresses, Inc. sold 26,000 shares of its $1 par value common stock at a cash price of $12 per share. The entry to record this transaction would be:

Answer 1

Answer:

Debit cash for $312,000

Credit common stock for $26,000

Credit Paid in capital in excess of par value, common stock for $286,000.

Explanation:

Selling the share at $12 per share which is higher than the par value of $1 indicates that the shares are sold at a premium of $11 (i.e. $12 - $1 = $11). Therefore, there is a paid in capital in excess of par value of $11 per share.

Before posting the entries, we do the following calculation first.

Cash received = 26,000 * $12 = $312,000

Common stock = 26,000 * $12 = $26,000

Paid in capital in excess of par value = 26,000 * 11 = $286,000

The entry to record this transaction would therefore appear as follows:

Pariculars                                                               Dr ($)            Cr ($)      

Cash                                                                    312,000

Common stock                                                                           26,000

Paid in capital in ex. of par v. - Common stock                      286,000

To record issue of common stock at a premium.