Question

M11-4 Analyzing and Recording the Issuance of Common Stock [LO 11-2] To expand operations, Aragon Consulting issued 1,050 shares of previously unissued common stock with a par value of $1. The price for the stock was $50 per share. Required: 1-a. Complete the table below, indicating the account, amount and direction of the effect for the stock issuance. 1-b. Prepare the journal entry for the stock issuance. 2-a. Complete the table below, indicating the account, amount, and direction of the effect for the stock issuance with a par value of $2. 2-b. Prepare the journal entry for the stock issuance, if the par value were $2 per share.

Answer 1

The table indicated is of accounting equation. Accounting equation is based on the double entry system of book keeping. It means that whenever there is transactions, there will be two accounts recorded. As per accounting equation, assets should equal the sum of liabilities and stockholders’ equity.

1a.

Assets	=	Liabilities	+	Stockholders’ equity
Cash =$ 52,500	=	0	+	Common stock = 1050*1 = $ 1050
			+	Paid in capital in excess of par = 1050*49 = $ 51450
$ 52,500		TOTAL		$ 52,500

1b.

Date	Journal Entry	Debit	Credit
	Cash	52,500
	Common stock		1050
	Paid in capital in excess of par		51,450
	(To record issuance of stock)

2a.

Assets	=	Liabilities	+	Stockholders’ equity
Cash =$ 52,500	=	0	+	Common stock = 1050*2 = $ 2100
			+	Paid in capital in excess of par = 1050*48 = $ 50400
$ 52,500		TOTAL		$ 52,500

2b.

Date	Journal Entry	Debit	Credit
	Cash	52,500
	Common stock		2100
	Paid in capital in excess of par		50,400
	(To record issuance of stock)

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