Question

Smith & Sons, Inc., is authorized to issue one million shares of $1 par value common stock. The company actually sells 250,000 shares at $5 per share. Prepare the journal entry to record the issuance of the 250,000 shares.

Answer 1

Dr Cash $1,250,000

Common stock $250000

Paid-in-share capital $1000000

Step-by-step explanation:

The issue of 250000 shares brings additional cash of 250000*$5=$1250000 hence cash account is debited with the same amount.

On other side,the common stock account has also increased by $250000(250000*$1 per value of each share issued) as well as paid-in-capital account that has also increased by $1000000(250000*$4 each per share i.e the excess of issuing price over par value)

Paid-in-share capital is also known as share premium account and it is also a component of equity.