Question

On Jan. 2, Callie Taylor invests $40,000 into the business in exchange for common stock. She journalize the transaction as follows but something is wrong with the journal entry. Use your knowledge of what a correct journal entry should look like to identify everything that is wrong.

Answer 1

The dollar amount is wrong in the Credit column.

The Cash account should be listed first.

The Common Stock account should be indented as it is credited.

Common Stock should be listed second, below Cash.

Step-by-step explanation:

Answer 2

See explanation section.

Step-by-step explanation:

The correct journal to record this transaction is -

Cash Debit $40,000

Common stock Credit $40,000

Note: As Callie Taylor invests the amount in exchange for common stock, An asset (cash) will be increased, and equity (common stock) will be increased. An increase in asset means debit, while an increase in equity means credit.