Question

1.    If a company has 1,000,000 shares of $2 par value common stock authorized, and has 100,000 shares issued at $4 a share and 20,000 shares of common stock are held in the treasury, the general ledger account for common stock would have a balance of

a.     $4,000,000

b.     $2,000,000

c.     $400,000

d.     $200,000

e.     $160,000

Answer 1

When the shares are issued then the general ledger account for common stock is credited by the par value of issued shares.

In the given case, company has issued 100,000 shares($2 par) at $4 per share. Therefore the ledger account of common stock would be credited by $200,000 (100,000 shares*$2 par). For purchase of shares held in treasury, treasury stock is debited by purchase cost of treasury stock.

Therefore the general ledger account for common stock would have a balance of $200,000.

Hence the correct option is d) $200,000.