Question

Daffy Duct, Inc. issued 10,000 shares of 1 par value common stock at 10 per share. The bookkeeper recorded this transaction with a 100,000 debit to Cash and a 100,000 credit to common stock. As a result of this entry, common stock will be ________________, and additional paid-in capital will be __________________.

Answer 1

The correct effect of the entry on the Common Stock and Additional Paid-in Capital accounts is Common Stock: $10,000 and Additional Paid-in Capital: $90,000.

Step-by-step explanation:

When Daffy Duct, Inc. issued 10,000 shares of 1 par value common stock at $10 per share, the total value of the stock issued would be 10,000 x $10 = $100,000. The bookkeeper mistakenly recorded this transaction with a $100,000 debit to Cash and a $100,000 credit to common stock. However, the correct entry should have been a $100,000 debit to Cash and a $10,000 credit to Common Stock, with the remaining $90,000 allocated to Additional Paid-in Capital. Therefore, the correct effect of this entry on the Common Stock and Additional Paid-in Capital accounts should be:

1. Common Stock: $10,000
2. Additional Paid-in Capital: $90,000