Question

Kunze's common stock and paid-in capital accounts increased by a total of $10 million. To analyze the transaction using a journal entry, Kunze should debit ______ and credit ____?

Answer 1

To record an increase in Kunze's common stock and paid-in capital accounts totaling $10 million, the correct journal entry would

involve debiting the Cash account and crediting either the Common Stock account, the Paid-in Capital account, or both.

Step-by-step explanation:

When Kunze's common stock and paid-in capital accounts increase by a total of $10 million, the journal entry to record this transaction would require a debit to

the Cash account and a credit to the Common Stock and/or Paid-in Capital accounts, depending on how the equity has been structured. This assumes the increase is a result from an issue of new stock to shareholders for cash. The debit entry reflects the increase in assets (cash received), while the credit entry reflects the increase in equity (shares issued).

To illustrate, if the entire amount relates to the issuance of common stock, the journal entry would be:

• 
  
• Debit Cash $10 million
• 
  
• Credit Common Stock $10 million

However, if some portion of the $10 million is for share premium above par value (which would be recorded in Paid-in Capital), the journal entry might look like this:

• 
  
• Debit Cash $10 million
• 
  
• Credit Common Stock (par value amount)
• 
  
• Credit Paid-in Capital (premium amount)