Question

When a corporation issues capital stock at a price higher than the par value: Select one: a. The amount received over par value increases retained earnings. b. The entire issue price is credited to the Capital Stock account. c. The amount received in excess of par value constitutes profit to the issuing corporation. d. The amount received in excess of par value becomes part of paid-in capital.

Answer 1

d. The amount received in excess of par value becomes part of paid-in capital.

Step-by-step explanation:

When the corporation issue the capital stock which is higher than the par value it would be credited to Additional paid in capital in excess of par account

The journal entry is shown below for better understanding

Cash A/c Dr XXXXX

To Capital Stock XXXXX

To Additional Paid-in Capital in excess of par - Capital Stock XXXXX

(Being the issuance of capital stock is recorded and the remaining balance is credited to the additional paid-in capital account)

While issuing the stock, we debited the cash account and credited the common stock and additional paid-in capital account