Question

When a company issues of shares of $0.10 par value common stock for $10 per share, it will record a _________ .

O credit to additional paid-in capital for the difference between the $10 price and the $0.10 par value
O debit to gain on sale of common stock
O credit to loss on sale of common stock
O debit to loss on sale of common stock
O debit to additional paid-in capital for the difference between the $10 price and the $0.10 par value
O credit to gain on sale of common stock

Answer 1

When a company issues shares at a price higher than their par value, it records a debit to Additional Paid-In Capital for the difference between the issue price and the par value.

Step-by-step explanation:

When a company issues shares of $0.10 par value common stock for $10 per share, it will record a debit to the Additional Paid-In Capital (APIC) for the difference between the issue price and the par value of the stock. This is because the journal entry to reflect the stock issuance includes a debit to Cash for the total amount received, a credit to Common Stock for the aggregate par value of the shares issued, and a debit to Additional Paid-In Capital to balance the entry for the excess over par value.

For example, if a company issues 1,000 shares, the entry would include a debit to Cash for $10,000 (1,000 shares × $10), a credit to Common Stock for $100 (1,000 shares × $0.10), and the remaining $9,900 (the difference between $10,000 and $100) would be a debit to Additional Paid-In Capital.