Question

Penne Pharmaceuticals sold 2 million shares of its $5 par common stock to provide funds for research and development. If the issue price is $16 per share, what is the journal entry to record the sale of the shares

Answer 1

The journal entry to record the sale of the shares would be: debit Common Stock for $10,000,000, credit Cash for $32,000,000, and record the remaining amount as Additional Paid-in Capital.

Step-by-step explanation:

The journal entry to record the sale of the shares would be as follows:

1. Cash (2,000,000 shares x $16) = $32,000,000
2. Common Stock (2,000,000 shares x $5 par value) = $10,000,000
3. Additional Paid-in Capital (Plug)

In this entry, the Cash account is credited for the total amount received from the sale of the shares, which is $32,000,000. The Common Stock account is debited for the par value of the shares sold, which is $10,000,000. The remaining amount, $22,000,000, is recorded as Additional Paid-in Capital, which represents the excess of the issue price over the par value.