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8 September, 03:26

A company issued 60 shares of $100 par value common stock for $7,000 cash.

The journal entry to record the issuance is:

a) Debit Common Stock $6,000, debit Investment in Common Stock $1,000; credit Cash $7,000.

b) Debit Cash $7,000; credit Common Stock $6,000; credit Paid-in Capital in Excess of Par Value, Common Stock $1,000.

c) Debit Cash $7,000; credit Common Stock $7,000.

d) Debit Cash $7,000; credit Paid-in Capital in Excess of Par Value, Common Stock $6,000, credit Common Stock $1,000.

e) Debit Investment in Common Stock $7,000; credit Cash $7,000.

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Answers (1)
  1. 8 September, 03:35
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    b) Debit Cash $7,000; credit Common Stock $6,000; credit Paid-in Capital in Excess of Par Value, Common Stock $1,000.

    Explanation:

    When shares are issued and paid for, the entries required are debit to cash account and a credit to common stock. However, when the amount received is higher than the par value of the stock issued, the excess received is recorded as a share premium or Paid-in Capital in Excess of Par Value.

    As such, where the par value is $100 and 60 shares were issued, value of common stock issued

    = $100 * 60

    = $6,000

    Paid-in Capital in Excess of Par Value = $7,000 - $6,000

    = $1,000
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