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27 August, 13:46

The Vernon Corporation was formed on January 2, 2018. The company sold 20,000 shares of $8.00 par value stock for $20.00 per share. On July 1, 2018, Vernon bought back 4,000 shares of stock for $24.00 per share. The treasury stock was resold on September 1, 2018 for $32.00 per share.

Which one of the following is the entry to record the original sale of the stock?

A) DR Cash 400,000 CR Common stock 160,000 CR Paid-in capital in excess of par 240,000

B) DR Cash 400,000 CR Common stock 240,000 CR Paid-in capital in excess of par 160,000

C) DR Common stock 240,000 DR Paid-in capital in excess of par 160,000 CR Cash 400,000

D) DR Common stock 160,000 DR Paid-in capital in excess of par 240,000 CR Cash 400,000

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Answers (1)
  1. 27 August, 15:35
    0
    Option (A) is correct.

    Explanation:

    The Journal entry is as follows:

    Cash A/c Dr. $400,000

    To common stock A/c $160,000

    To Paid-in capital in excess of par A/c $240,000

    (To record the original sale of the stock)

    Workings:

    Cash = Number of shares sold * Selling price of each share

    = 20,000 * $20

    = $400,000

    Common stock = Number of shares sold * Par value

    = 20,000 * $8

    = $160,000

    Paid-in capital in excess of par = $400,000 - $160,000

    = $240,000
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