Question

A company issues 10,000 shares of $0.05 par value common stock for $25 per share. Which of the following is recorded at issuance? 8 01:51:54 Multiple Choice

O Credit Additional Paid-In Capital for $500.
O Credit Common Stock for $250,000.
O Credit Additional Paid-In Capital for $250,000.
O Credit Common Stock for $500.

Answer 1

When a company issues common stock for a certain price, it records an increase in the Common Stock account for the par value of the shares and an increase in Additional Paid-In Capital for the remaining amount. In this case, the company would credit Common Stock for $250,000 and credit Additional Paid-In Capital for $250,000.

Step-by-step explanation:

When a company issues 10,000 shares of $0.05 par value common stock for $25 per share, the appropriate recording would be to Credit Common Stock for $250,000 and Credit Additional Paid-In Capital for $250,000.

The Common Stock account is credited with the par value of the shares, which is calculated as $0.05 x 10,000 shares = $500. This increases the equity in the company for the value of the shares issued.

The Additional Paid-In Capital account is then credited with the remaining amount, which is the difference between the issue price of $25 per share and the par value of $0.05 per share, multiplied by the number of shares issued. This can be calculated as ($25 - $0.05) x 10,000 shares = $249,950. This represents the additional amount paid by investors for the shares above their par value.

Therefore answer is O Credit Common Stock for $250,000.