Question

Wolcott Corporation issued 5,000 shares of no-par common stock for $2 per share on January 13. Record the stock issuance. (Record debits first, then credits. Select the explanation on the last line of the journal entry table.)

Answer 1

The journal entry for Wolcott Corporation's stock issuance includes a debit to Cash for $10,000 and a credit to Common Stock for $10,000, representing the sale of 5,000 no-par shares at $2 each.

Step-by-step explanation:

To record the issuance of 5,000 shares of no-par common stock at $2 per share, the journal entry is as follows:

1. Debit Cash $10,000 (5,000 shares × $2 per share).
2. Credit Common Stock $10,000.

This journal entry reflects the inflow of cash from the sale of common stock and the corresponding increase in equity representing the issued shares. By issuing stock, a company recognizes investors' expectations for a rate of return through either dividends or capital gains. For example, an investor may purchase stock at a lower price and sell at a higher price, thus realizing a capital gain. This expectation is a fundamental in the stock market and influences the decision of investors to buy shares of a particular company.