Final answer:
When Innovative Media issues shares above par value, the difference is recorded as additional paid-in capital. The company credits the preferred stock account at par value and the additional paid-in capital for the excess amount. The correct entry for the issuance is a credit to additional paid-in capital for $10,000.
Step-by-step explanation:
When Innovative Media issues 1,000 shares of 8%, $50 par value preferred stock for $60 per share, they receive more money than the par value of the stock. This excess amount is referred to as additional paid-in capital. The transaction involves a debit to cash for the total amount received, which is 1,000 shares multiplied by $60 per share, resulting in $60,000. The preferred stock account is credited for the par value of the shares, which is 1,000 shares multiplied by $50 per share, totaling $50,000. The difference between the cash received and the par value of the stock ($60,000 - $50,000) is the additional paid-in capital, which is $10,000. Therefore, the correct entry would be a credit to additional paid-in capital for $10,000.
The journal entry at the time of the issue would look like this:
- Debit Cash for $60,000
- Credit Preferred Stock for $50,000
- Credit Additional Paid-in Capital for $10,000