The Sneed Corporation issues 10,000 shares of $50 par value preferred stock for cash at $70 per share. The entry to record the transaction will consist of a debit to Cash for $700,000 and a credit or credits to:

Question

Quizplus · Accepted Answer

The entry to record the issuance of preferred stock involves a debit to Cash for the total amount received, which is $70 per share multiplied by 10,000 shares for a total of $700,000. The credit should be split between Preferred Stock and Additional Paid-in Capital, since the stock was issued at a higher price than its par value. The Preferred Stock account should be credited for the par value of the shares issued, which is 10,000 shares multiplied by $50 par value per share for a total of $500,000. The Additional Paid-in Capital account should be credited for the difference between the total amount received and the par value of the shares, which is $700,000 minus $500,000 for a total of $200,000. Thus, the correct answer is B.

The Sneed Corporation Issues 10,000 Shares of $50 Par Value