Question

Prepare journal entries to record each of the following four separate issuances of stock.

1. A corporation issued 4,000 shares of \(5 par value common stock for \)35,000 cash.
2. A corporation issued 2,000 shares of no-par common stock to its promoters in exchange for their efforts, estimated to be worth \(40,000. The stock has a \)1 per share stated value.
3. A corporation issued 2,000 shares of no-par common stock to its promoters in exchange for their efforts, estimated to be worth \(40,000. The stock has no stated value.
4. A corporation issued 1,000 shares of \)50 par value preferred stock for $60,000 cash.

Short answer

1. Cash is debited by $35,000; Common stock and Paid-in capital are credited by $20,000 and $15,000.
2. Organization expense is debited by $35,000; Common stock and Paid-in capital are credited by $2,000 and $38,000.
3. Organization expense is debited by $40,000; Common stock is credited by $40,000.
4. Cash is debited by $60,000; Preferred stock and Paid-in capital are credited by $50,000 and $10,000.

Step-by-step solution

Meaning of Common Stock

Common stock refers to the Stocks with voting rightsthat the company issues to the shareholders.

(1) Recording of Journal entry

Date	Account and Explanation	Debit ($)	Credit ($)
	Cash	35,000
	Common Stock, $ 5 Par Value$(4,000\times \$5)$		20,000
	Paid-In Capital in Excess ofPar Value, Common stock		15,000
	(To record the Issuance of common stock for cash)

(2) Recording of Journal entry

Date	Account and Explanation	Debit ($)	Credit ($)
	Organization Expenses	40,000
	Common Stock, $1 Stated Value$(2,000\times \$1)$		2,000
	Paid-In Capital in Excess of Stated Value, Common stock		38,000
	(To record the Issuance ofstock to promoters)

(3) Recording of Journal entry

Date	Account and Explanation	Debit ($)	Credit ($)
	Organization Expenses	40,000
	Common Stock, No-Par Value		40,000
	(To record the Issuance of stock to promoters)

(4) Recording of Journal entry

Date	Account and Explanation	Debit ($)	Credit ($)
	Cash	60,000
	Preferred Stock, $50 Par Value$\left(1,000\times \$50\right)$		50,000
	Paid-In Capital in Excess of Par Value, Preferred Stock		10,000
	(To record the Issuance of preferred stock)