Matthew Martin, the sole stockholder of Innovation Consulting, started the business by investing $40,000 cash in exchange for common stock. Identify the general journal entry below that Innovation Consulting will make to record the transaction.

Cash 40,000 Credit

Common Stock 40,000 Debit

Cash 40,000 Debit

Common Stock 40,000 Credit

The correct answer is option (B).

Explanation:

According to the scenario, the given data are as follows:

Investing in business = $40,000 in exchange of common stock

This shows that, when investing in business cash is being debited and as cash is being used to buy common stock so, Common stock is being credited in journal entry.

So, the journal entry that Innovation consulting will make are as follows::

Journal Entries

Particulars Debit Credit

Cash $40,000.00

To Common stock $40,000.00

Hence, this shows the correct answer is option (B).