Question

Dude Duds, Inc. is a clothing retailer specializing in affordable family apparel. Prepare journal entries and related adjusting entries (if any) for the transaction below for the first quarter ending March 31 of the current year. Issued 360,000 shares of $1 par value common stock for $2,250,000 on Jan 1. Select one: O a. Debit Common Stock $360,000; Debit APIC $1,890,000; Credit Cash $2,250,000 O b. Debit Cash $2,250,000; Credit Common Stock $360,000; Credit APIC $1,890,000 c. Debit Cash $2,250,000; Credit Common Stock $2,250,000 d. Debit Common Stock $2,250,000; Credit Cash $2,250,000 e. No journal entry or adjusting entry required

Answer 1

Summary of the information contained in the question:

• Nos of share issued : 360,000
• Par value of the share :  $ 1
• Cash received for issuance : 2,250,000

Correct answer is : option c : debit cash 2,250,000 ; credit common stock a/c : 360,000 credit APIC a/c 1,890,000

Explanation

• cash received for issuance is 2250,000 where as face value of the share is only 360,000 i.e. 360,000 nos of share x  $ 1 face value
• Hence company has received 1,890,000 over and above its face value (i.e. 2250,000 - 360,000)
• Hence this excess amount would be regarded as additional paid in capital i.e. premium amount over par value
• As per golden rules of accounting for real account debit what comes in. Cash account would be debited while making journal of the transaction. And accordingly common stock account will be credited as it's create liability to the owners and additional amount so received above par would be credited to AIPC account
• Cash a/c dr...... 2250,000
• To common stock a/c (face value)cr...........360,000
• To AIPC A/c (excess of par) cr........ 1,890,000