Question

On January 1, Year 1, Davidson Corporation issues 1,000 shares of $1 par value common stock for $20 per share. Complete the necessary journal entry for the issuance of common stock by indicating the relevant account names and dollar amounts below. If more than one account title is debited or credited, enter the account titles in their alphabetical order.

Answer 1

The necessary journal entry is:

Dr Cash 20,000

Cr Additional paid-in capital - common stock 19,000

Cr Common Stock 1,000

(to record the issued of 1,000 common shares with par value of $1 at price of $20)

Step-by-step explanation:

Please find the below for detailed explanations and calculations:

- Cash receipt from the issuance = price per stock x number of stocks issued = 1 x 1,000 = $1,000; which will be debited to show the increase in Cash;

- Common share recorded = par value of a stock x number of stocks issued = 1 x 1,000 = $1,000; which will be credited to show the increase in Common stock

- Additional paid-in capital - common stock recorded = ( price per stock - par value of a stock ) x number of stocks issued = (20-1) x 1,000 = $19,000; which will be credited to show the increase in Additional paid-in capital - common stock.