A company sold 200 shares of common stock with a par value of $5 at a price of $13 per share.What is the effect on the accounts of this transaction?

Question

Quizplus · Accepted Answer

Selling 200 shares at $13 per share generates a total cash inflow of $2,600. The par value of each share is $5, so the total common stock increase is $1,000 (200 shares x $5). Since the shares were sold at a price higher than their par value, the rest of the cash received above the par value is considered paid-in capital, which is $8 per share ($13 selling price - $5 par value). The total increase in paid-in capital is $1,600 (200 shares x $8). Therefore, the effect on the accounts of this transaction is an increase in cash of $2,600, an increase in common stock of $1,000, and an increase in paid-in capital of $1,600.

A Company Sold 200 Shares of Common Stock with a Par