Question

Knorr issues 1,000 shares of $2 par value common stock for $10 per share. The journal entry to record this transaction will include which of the following?

A) Credit to Common stock $2,000
B) Credit to Common stock $10,000
C) Credit to Additional paid-in capital $8,000
D) Credit to Retained earnings $8,000

Answer 1

Answer:

A) Credit to Common stock $2,000

C) Credit to Additional paid-in capital $8,000

Explanation:

The journal entry to record the issuance of stocks should be:

Dr Cash 10,000

    Cr Common stock 2,000

    Cr Additional paid in capital 8,000

Whenever a corporation issues new stocks, it must increase common stock account using the stocks' par value. Any additional amount must be recorded under the additional paid in capital account. Both accounts are part of the stockholders' equity and have credit balances.