Question

An individual contracts for the purchase of 200 shares of $10 par common stock at a subscription price of $15. After making payments totaling $1,200, the subscriber defaults. Shares are issued in proportion to the amount of cash paid by the investor. The summary journal entry to record the net effect of these two transactions includes:

Answer 1

Answer:

D) Credit paid in capital in excess of par on common, $400

Explanation:

The summary journal entry should be:

Dr Cash 1,200

    Cr Common stock 800

    Cr Additional paid-in capital in excess of par value 400

the subscriber paid $1,200 / $15 per stock = 80 stocks

par value = $10 per stock x 80 stocks = $800

additional paid-in capital = $5 per stock x 80 stocks = $400