Question

During its first year of operations, Mona Corporation had these transactions pertaining to its common stock. Jan. 10 Issued 30,000 shares for cash at $5 per share. July 1 Issued 60,000 shares for cash at $7 per share. (a) Journalize the transactions, assuming that the common stock has a par value of $5 per share. (b) Journalize the transactions, assuming that the common stock is no-par with a stated value of $1 per share.

Answer 1

Answer:

(a) Journalize the transactions, assuming that the common stock has a par value of $5 per share

                                                Debit                               Credit

Cash                                         150,000

Common Stock                                                                  150,000

Cash                                         420,000

Common stock                                                                300,000

Additional Paid in Capital                                                  120,000

The first entry we debit cash for 150,000 because 30,000 shares are sold at $5 so 30,000* 5= $150,000 and we credit common stock by 150,000 because the par value of the shares are 5 per share and 30,000*5= $150,000. Because the price and par value are the same there is no additional paid in capital

In the second Entry we debit cash for 420,000 because 60,000 shares are sold for $7 and 60,000*7= 420,000. We credit common stock by 300,000 because par value of share is $5 and 5*60,000 = 300,000. We Credit additional paid in capital by 120,000 because that is the difference between the par value of the shares and price of shares. (7-5)* 60,000= 2*60,000= 120,000

(b) Journalize the transactions, assuming that the common stock is no-par with a stated value of $1 per share.

                                             Debit                               Credit

Cash                                         150,000

Common Stock                                                                  30,000

Additional Paid in Capital                                                 120,000

Cash                                         420,000

Common stock                                                               60,000

Additional Paid in Capital                                               360,000

In the first entry we debit cash for 150,000 because 30,000 shares are sold at $5 so 30,000* 5= $150,000 and we credit common stock by 30,000 because the stated value of the stock per share is $1 and 1*30,000 = 30,000. We credit additional paid in capital by 120,000 because the difference between the price of the stock and stated value of the stock is 120,000. (5-1)*30,000= 4*30,000= 120,000

In the second Entry we debit cash for 420,000 because 60,000 shares are sold for $7 and 60,000*7= 420,000. We credit common stock by 60,000 because the stated value of the stock per share is $1 and 1*60,000 = 60,000 and we credit additional paid in capital by 360,000 because that is the difference between the price of the stock and stated value of the stock.

(7-1)*60,000=6*60,000= 360,000

   

Explanation: