Strait Corp.sold 10,000 shares of $1 par value stock for $1 per share.How would the company record this transaction?
A)Debit Cash for $10,000 and credit Common Stock,$1 Par Value for $10,000.
B)Debit Cash for $10,000 and credit Paid-In Capital for $10,000.
C)Debit Cash for $10,000 and credit Paid-In Capital,Common Stock for $10,000.
D)Debit Cash for $10,000 and credit Paid-In Capital in Excess of Par Value,Common Stock for $10,000.
E)Debit Common Stock,$1 Par Value for $10,000 and credit Cash for $10,000.

Question

Quizplus · Accepted Answer

When shares are sold at par value, the transaction is recorded by debiting cash for the amount received and crediting common stock for the par value of the shares sold. In this case, the company received $10,000 for 10,000 shares of $1 par value stock, so it should debit cash for $10,000 and credit common stock for $10,000. Option A correctly reflects this. Option B is incorrect because paid-in capital is only recorded when shares are sold above par value. Option C is incorrect because it incorrectly credits paid-in capital and not common stock. Option D is incorrect because paid-in capital in excess of par value is only recorded when shares are sold above par value. Option E is incorrect because it incorrectly debits common stock and credits cash, which is the opposite of what should be recorded.