Final answer:
The journal entry for Jim investing $20,000 into his company in exchange for common stock includes a debit to cash and a credit to common stock. When a company issues stock, it provides a means to raise capital without fixed interest payments but does increase accountability to shareholders.
Step-by-step explanation:
When Jim invests $20,000 cash into his new company named JR, Inc., and the company issues Jim common stock, the journal entry to record this transaction would include a debit to cash and a credit to common stock. This is because the company is receiving cash, thereby increasing its assets, which is recorded as a debit. Concurrently, the company is issuing common stock, which represents an increase in the company's equity, and this is recorded as a credit.
The correct journal entry would look like this:
This means the answer to the question is a) a credit to common stock. Issuing stock allows a company to access financial capital without committing to scheduled interest payments, unlike borrowing through loans or bonds. However, it does involve selling off part of the company ownership to the public and becoming accountable to the shareholders.