Question

Rodriguez Corporation issues 13,000 shares of its common stock for $130,900 cash on February 20.Prepare journal entries to record this event under each of the following situations :1) the stock has a $8 par value.2) The stock has neither par nor stated value3) the stock has an $4 stated value.

Answer 1

Answer:

1. Dr cash $130,900

Cr common stock $104,000

Cr Additional paid-in capital - common stock $26,900

2.Dr cash $130,900

Cr common stock $130,900

3. Dr cash $130,900

Cr common stock $52,000

Cr Additional paid-in capital-common stock $78,900

Explanation:

1. Issuance of share above par will result to premium. In excess of par value, the premium should be credited to additional paid-in capital account. Above-mentioned issuance was issued at $130,900 while its par value is only $104,000 (13,000 x $8). Thus, it will result to a premium of $26,900(130,900 - 104,000). To entry the said transaction, we have to;

Dr cash $130,900

Cr common stock $104,000

Cr additional paid-in capital - common stock $26,900

2. Issuance of share with no par and no stated value will result to no discount or premium. Some state will allow this way of issuance, but some also will not. So to record the said transaction we have to;

Dr cash $130,900

Cr common stock $130,900

3. In the absence of par value, the company may refer to its stated value in issuing of shares. Issuance of shares above stated value will result to a premium that is to be closed to additional paid-in capital account.

•4 x 13,000 = 52,000

•130,900 - 52,000 = 78,900 (premium)

Entry:

Dr cash $130,900

Cr common stock $52,000

Cr additional paid-in capital - common stock $78,900