Question

Freya, Inc., issued for $76 per share 5,000 shares of $40 par value common stock. The journal entry to record this transaction is: A) Cash 380,000 Common Stock 380,000 B) Cash 380,000 Common Stock 200,000 180,000 Additional Paid-in capital C) Cash 380,000 Common Stock 200,000 Retained Earnings 180,000 D) Cash 380,000 Common Stock 200,000 Gain on Sale of Stock 180,000

Answer 1

Answer = C.

Debit :: Cash 380,000

Credit :: Common stock 200,000

Credit :: Retaining Earnings 180,000.

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===>> Common stock is always recorded at Face Value / Par value of the stock.

===>> Excess amount collected behind the par value then the excess amount is transferred to Retained Earnings