When common stock is sold by a corporation, a journal entry is prepared which includes a debit to cash and a credit to the common stock account. If the debit to cash is greater than the credit to the common stock account, then it can be assumed that
A) the common stock is worth more than its current market value.
B) a gain on the sale of stock is a part of the transaction.
C) the common stock was sold at a discount
D) the stated value of the common stock is less than the per share price investors were willing to pay.

Question

Quizplus · Accepted Answer

When the debit to cash (the amount received from the sale of the stock) is greater than the credit to the common stock account (the par or stated value of the stock), it indicates that the stock was sold at a premium, meaning investors were willing to pay more than the stated value of the stock. This excess is typically credited to an additional paid-in capital account, not recognized as a gain.

When Common Stock Is Sold by a Corporation, a Journal