Question

Suppose Value Home and Garden Imports issued 400,000 shares of $0.10 par common stock at $4 per share. Which journal entry correctly records the issuance of this stock?
a. Debit Credit
Common Stock—$0.10 Par Value 1,600,000
Cash 40,000
Paid-ln Capital in Excess of Par—Common 1,560,000

b.
Common Stock—$0.10 Par Value 1,600,000
Cash

c.
Cash 1,600,000
Common Stock—$0. 10 Par Value 40,000
Paid-ln Capital in Excess of Par—Common 1,560,000

d.
Cash 1,600,000
Common Stock—$0. 10 Par Value 1,600,000

Answer 1

Answer:

The correct general entry is,

Cash                                                 1,600,000 Dr

Common Stock-$0.10 Par value                     40000 Cr

Paid-ln Capital in Excess of Par—Common    1,560,000 Cr

Option c is the correct answer

Explanation:

The issuance of stock will mean an inflow of cash to the company as a result. The cash received will be equal to the number of shares issued multiplied by the value at which they are issued.

Thus, cash received will be = 400000 * 4  =  $1600000

As the asset is increasing, the cash will be debited.

On the other side of the transaction, the issuance of stock is always recorded at the par value in the common stock account and any amount received in excess of par value is credited to the Paid-in-Capital in excess of par-Common Stock account.

Thus, Common stock will be credited by = 400000 * 0.1 = $40000

The remaining = 1600000 - 40000 = 1560000 will be credited to Paid-in-Capital in excess of par-Common Stock account.