Question

Innovative Media issues 1,000 shares of 8%, $50 par value preferred stock for $60 per share. Which of the following will be recorded at the time of the issue? a. A credit to additional paid-in capital for $10,000. b. A debit to cash for $50,000. c. A credit to preferred stock for $10,000. d. A creaser to preferred stock for $60,000.

Answer 1

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