A company sells 10,000 shares of previously authorized stock at the par value of $10 per share. What is the correct entry to record the transaction?

Question: a company sells 10,000 shares of previously authorized stock at the par value of $10 per share. What is the correct entry to record the transaction?

Debit cash $10,000, credit capital stock $10,000

Debit capital stock $100,000, credit cash $100,000

Debit cash $100,000, credit capita $100,000

Debit cash $100,000, credit treasury stock $100,000

Debit cash $10, credit capital stock $10

Answer: 3. Debit cash $100,000, credit capita $100,000

This is the correct entry because:

A transaction in which previously authorized shares of stock are issued by a company is recorded through debiting cash (or receivables) for the value received as well as crediting capital stock accounts to reflect par values.

In this example, the firm sold 100,000 shares for $1 per share with a par value of $1. The amount received in cash would also be $100, 000 (Quizlet, Inc., 2024).

Therefore, the correct entry is:

This records cash received from the issuance of stock and par value of shares issued to capital. The number of shares issued has no significance on the dollars reflected. The par value is recorded in the capital stock as it acts not only on a benefit basis but also as legal claim of the company.