Question

A corporation issues 5,000 shares of $1 par value stock for some equipment with a clearly determined value of $10,000. Prepare the journal entry to reflect this transaction.

a) Debit Equipment $10,000; Credit Common Stock $5,000; Credit Paid-in Capital in Excess of Par $5,000
b) Debit Equipment $10,000; Credit Common Stock $10,000
c) Debit Common Stock $10,000; Credit Equipment $10,000
d) Debit Common Stock $5,000; Debit Paid-in Capital in Excess of Par $5,000; Credit Equipment $10,000

Answer 1

The correct journal entry to record the issuance of 5,000 shares of $1 par value stock for equipment valued at $10,000 is a debit to Equipment for $10,000 and credits to Common Stock for $5,000 and Paid-in Capital in Excess of Par for $5,000.

Step-by-step explanation:

To record the issuance of 5,000 shares of $1 par value stock in exchange for equipment with a value of $10,000, the corporation would make a journal entry that involves debiting the Equipment account and crediting the Common Stock and Paid-in Capital in Excess of Par accounts. The correct journal entry is:

• Debit Equipment $10,000
• Credit Common Stock $5,000 (5,000 shares × $1 par value)
• Credit Paid-in Capital in Excess of Par $5,000 (the remainder of what the equipment is worth beyond the par value of the stock)

This entry reflects the acquisition of the equipment at its fair market value and the issuance of the common stock at its par value, with the excess of the equipment's value over the par value of the stock being credited to Paid-in Capital in Excess of Par.

Answer Choice

a) Debit Equipment $10,000; Credit Common Stock $5,000; Credit Paid-in Capital in Excess of Par $5,000