A Company Sells 10,000 Shares Of Previously Authorized Stock At The Par Value Of $10 Per Share. What's The Correct Entry To Record The Transaction?

Solution Of Multiple Choice Question (MCQ)

The correct option is “C”, as when the company / corporation sells / issues 10,000 shares of authorized stock at par value of $10 per share, then the company gets cash in exchange of shares sold in the market. So, 10,000 shares sold to investors at the par value of $10 each share yield the price of $100,000 (10,000 Shares X $10 Par Value).

The journal entry to record for this Transaction is shown below:

                                 Cash a/c  $100,000

 

                                                 Capital Stock a/c  $100,000

 

                 (10,000 Shares Sold To Investors At Par Value Of $10 Each Share)

Note: Authorized Stock Is Just Shown In The Balance Sheet As It Just Shows The Total Numbers Of Shares Within Which The Shares Sells To Shareholders / Stockholders.

As the company received cash in selling the shares, so there is cash inflows, so we debit cash account as it is increasing. Capital Stock is also increasing as investors are becoming the shareholders of the company by purchasing shares of the company. When capital stock account increases, we credit it according to the Rules of Debits and Credits.