Question

Weldon engineering owes one of its creditors $20,000. to settle the debt, weldon pays $5,000 cash and also issues common stock valued at $15,000 to the creditor. how would this repayment of the $20,000 debt be recorded in weldon's books?

Answer 1

Accounts Payable (Debt Owed) Debit $20,000

Cash Credit $5,000

Common Stock Credit.$15,000

Step-by-step explanation:

To record the cash paid and common stock issued to accounts payable (Debt owed) for Weldon Engineering's.

Since the Company settled the debt through cash and common stock, cash decreases, therefore, cash account would be credit. Again, since the company issued common stock to settle the payment, issued common stock becomes credit and the debt owed becomes the debtholder of the company, therefore, his debt becomes the companys asset.