Question

OM, Inc. was organized on January 1, 2020. The firm was authorized to issue 1,000,000 shares of $2 par value common stock. During 2020, OM had the following transactions relating to stockholders' equity: Issued 20,000 shares of common stock at $7 per share. Issued 40,000 shares of common stock at $8 per share. Reported a net income of $100,000. Paid dividends of $50,000. What is the total amount recorded in the Common Stock account at the end of 2020

Answer 1

Answer:

$120,000

Explanation:

It is important to identify whether the Common Stock have a stated Par Value or No Par Value from the Authorized Capital. In this case the Common Stock are stated at a $2 par value. With Par Value Stated Shares, any price paid in excess of the Par Value is Accounted for in a reserve called Paid in Excess of Par or Stock Premium.

Transaction 1

Cash $140,000 (debit)

Common Stock $40,000 (credit)

Paid In Excess of Par $100,000 (credit)

Transaction 2

Cash $320,000 (debit)

Common Stock $80,000 (credit)

Paid In Excess of Par $240,000 (credit)

Therefore,

Total Common Stock at the end of 2020 will be $120,000 ($40,000 + $80,000).