Question

The 12/31/2013 balance sheet of Despot Inc. included the following: Common stock, 25 million shares at $20 par $500 million Paid-in capital—excess of par 3,000 million Retained earnings 980 million In January 2013, Despot recorded a transaction with this journal entry: Cash $150 million Common stock $100 million Paid-in capital—excess of par 50 million The transaction was for the: a. Issue of 2 million shares of common stock at par value. b. Issue of common stock for $150 million in cash. c. Receipt of $20 per share for a new stock issue. d. All of the above are correct.

Answer 1

Answer:

b. Issue of common stock for $150 million in cash

Explanation:

Since the journal entry would be

Cash A/c Dr $150 million

   To Common stock A/c                    $100 million

   To Paid-in capital - the excess of par   $50 million

(Being the common stock is issued)

In this transaction, the common stock is issued for cash of $150 million in which the common stock is $100 million and the remaining balance $50 million ($150 million - $100 million) would be credited to the paid-in capital account.

Hence, the correct option is b.