Question

Randal Inc. has authorized capital to issue 3.000 new common stocks at $5 par value. Ms. Marianne Randal pays $10,000 in exchange for 1500 common stocks. Which of the following accounting is correct?

Cash debit $10,000 and Capital Stock credit $10,000

Cash debit $10,000 and Unpaid Capital credit $10,000

Cash debit $10,000 and Capital Stock credit $7,500; Additional Paid in Capital credit $2,500

Cash debit $10,000 and Capital Stock credit $2,500 and Additional Paid in Capital $7,500

Answer 1

Ms. Marianne Randal pays 10,000 in exchange for 1,500 common stock.

The general rule is Debit what comes in and credit what goes out

Therefore debit cash 10,000

and 1,500 common stock is exchanged for this 10,000 cash.

The value of stock is $5.

That means for 1500 common stock = 1,500*5 = 7,500

Therefore, credit common stock or capital stock with 7500 and the excess amount that is 10,000 - 7500 = 2,500.

it should be credited to additional paid in capital.

The answer is:

Cash debit $10,000 and Capital stock credit $7500; Additional paid in capital $2,500.