Question

1. A corporation issues 20,000 shares of 5 par value common stock for15 per share. The company earned net income of 100,000 for the period and paid dividends of50,000. How much will be credited to the Common Stock account for this transaction?

1) $100,000
2) $200,000
3) $300,000
4) $250,000
5) $150,000

Answer 1

In this case, it is 20,000 shares times $5, totaling (option 1) $100,000, which is the amount credited to the Common Stock account.

Step-by-step explanation:

The corporation's issuance of shares is a business transaction involving the exchange of capital stock for cash.

The amount credited to the Common Stock account is based on the par value of the issued shares, not on the amount received or any other financial activity such as net income or dividends.

Here, the corporation issues 20,000 shares with a par value of $5 per share.

Therefore, the Common Stock account will be credited with the product of the number of shares issued and the par value of each share.

Common Stock account credit = Number of shares issued × Par value per share = 20,000 shares × $5 = $100,000.

This amount is independent of the price at which the shares are sold to investors ($15 per share), the net income earned, or the dividends paid.

Therefore, the correct answer to the question is $100,000 and the correct option is 1) $100,000.