Question

When stock is issued for more than its par value, what must the accountant do?

a) Debit the Common Stock account
b) Debit the Additional Paid-in Capital account
c) Credit the Common Stock account
d) Credit the Retained Earnings account

Answer 1

When stock is issued for more than its par value, the accountant should credit the Common Stock account for the par value and credit the Additional Paid-in Capital account for the amount received over the par value.

Step-by-step explanation:

When stock is issued for more than its par value, the accountant must perform specific accounting entries to correctly reflect this transaction in the company's financial records. The correct action in this scenario is to credit the Common Stock account for the par value of the shares issued. The additional amount received, over and above the par value, must be recorded in a separate equity account called Additional Paid-in Capital.

Here is a step-by-step explanation:

1. Identify the total amount received for the shares issued.
2. Determine the par value of the shares.
3. Credit the Common Stock account with the par value amount.
4. The excess amount over the par value is credited to the Additional Paid-in Capital account. This represents the capital invested by shareholders that is more than the nominal value of the stock.

Therefore, the correct answer to the question is c) Credit the Common Stock account for the par value and also credit Additional Paid-in Capital for the amount over par value.