Chapter 13, Problem 1MCQ

A corporation issues 6,000 shares of $5 par value common stock for $8 cash per share. The entry to record this transaction includes

1. a. A debit to Paid-In Capital in Excess of Par Value for $18.000.
2. b. A credit to Common Stock for $48,000.
3. c. A credit to Paid-In Capital in Excess of Par Value for $30,000.
4. d. A credit to Cash for $48,000.
5. e. A credit to Common Stock for $30,000.

To determine

Identify the entry to record the given transaction.

Explanation of Solution

Share issue cost:

Cost such as legal fee, promotional charge, and accounting services incurred for the purpose of share issuance would reduce the net cash proceeds from the sale of shares.

Identify the entry to record the given transaction as follows:

Date	Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
	Cash (1)		48,000
	Common Stock (2)			30,000
	Paid-in Capital–Excess of Par value, Common stock (3)			18,000
	(To record issue of common stock at par value)

Table (1)

Working Notes:

Compute cash received for issuance of stock.

$\begin{array}{c}\text{Cash received for stock = Number of shares issued}\times \text{Sale price per share}\\ \text{= 6,000}\text{shares}\times \text{\$8}\\ \text{= \$48,000}\end{array}$ (1)

Compute common stock value.

$\begin{array}{c}\text{Common stock value= Number of shares }\times \text{ Par value per share}\\ \text{= 6,000 shares × \$5}\\ \text{= \$ 30,000}\end{array}$ (2)

Compute paid-in capital in excess of par value.

$\begin{array}{c}\begin{array}{l}\text{Paid-in capital in }\\ \text{excess of par value}\end{array}\}\text{ = }\left\{\begin{array}{l}\text{Cash received –}\\ \text{Common stock value}\end{array}\right\}\\ \text{= \$48,000 – \$30,000}\\ \text{= \$18,000}\end{array}$ (3)

Hence, the entry to record the given transaction is Option e. A credit to Common Stock for $30,000.