Question

Prepare journal entries to record each of the following four separate issuances of stock.

Answer 1

Answer:

Transaction a

Debit : Cash $36,000

Credit : Common Stock (3,000 x $10) $30,000

Credit : Common Stock - Paid in excess of par $6,000

Transaction b

Debit : Cash $23,000

Credit : Common Stock $23,000

Transaction c

Debit : Cash $23,000

Credit : Common Stock $23,000

Transaction d

Debit : Cash $79,250

Credit : Preferred Stock (750 x $75) $56,250

Credit : Preferred Stock - Paid in excess of par $23,000

Explanation:

The journal entries to record each of the following four separate issuances of stock have been prepared above.

Step 1 : Distinguish if Stock has par value or not

For par value stock, any amount paid in excess of par value is places in a reserve - Paid in Excess of Par on issuance.

For non par value stocks, we value stocks at market price of item exchanged

Step 2 : Recording

On Issuance, Cash is increasing so we debit Cash Account. The Stock Account as well as the Reserve - Paid in Excess (if applicable) both increases on the credit side, so that will be a Credit entry