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 Cash $7,000;credit Common Stock $7,000.
B)Debit Investment in Common Stock $7,000;credit Cash $7,000.
C)Debit Cash $7,000;credit Common Stock $6,000;credit Paid-in Capital in Excess of Par Value,Common Stock $1,000.
D)Debit Common Stock $6,000,debit Investment in Common Stock $1,000;credit Cash $7,000.
E)Debit Cash $7,000;credit Paid-in Capital in Excess of Par Value,Common Stock $6,000,credit Common Stock $1,000.

Question

Quizplus · Accepted Answer

This journal entry follows the basic accounting equation of assets = liabilities + equity. When a company issues stock, cash increases (asset) and stockholders' equity increases. In this case, the company issued 60 shares of common stock with a par value of $100 per share for $7,000 cash. The par value of the stock is $100 x 60 shares = $6,000. This means that the total amount of money received ($7,000) is more than the par value of the stock ($6,000). The excess amount is considered as paid-in capital in excess of par value, which is represented by the remaining $1,000.

Therefore, the journal entry to record the issuance of common stock for $7,000 cash is:

Debit Cash $7,000 (increase in asset)
Credit Common Stock $6,000 (increase in equity - par value of stock)
Credit Paid-in Capital in Excess of Par Value, Common Stock $1,000 (increase in equity - excess amount paid)

A Company Issued 60 Shares of $100 Par Value Common