{"id":154095,"date":"2024-10-13T21:45:36","date_gmt":"2024-10-13T21:45:36","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=154095"},"modified":"2024-10-13T21:45:38","modified_gmt":"2024-10-13T21:45:38","slug":"a-company-sells-10000-shares-of-previously-authorized-stock-at-the-par-value-of-10-per-share","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2024\/10\/13\/a-company-sells-10000-shares-of-previously-authorized-stock-at-the-par-value-of-10-per-share\/","title":{"rendered":"A company sells 10,000 shares of previously authorized stock at the par value of $10 per share."},"content":{"rendered":"\n<p>A company sells 10,000 shares of previously authorized stock at the par value of $10 per share. What&#8217;s the correct entry to record the transaction?<\/p>\n\n\n\n<p><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-ast-global-color-6-color\">The Correct Answer and Explanation is:<\/mark><\/strong><\/p>\n\n\n\n<p>To record the sale of 10,000 shares of previously authorized stock at a par value of $10 per share, the correct journal entry is as follows:<\/p>\n\n\n\n<p><strong>Journal Entry:<\/strong><\/p>\n\n\n\n<pre class=\"wp-block-code\"><code>   Debit: Cash                     $100,000\n   Credit: Common Stock            $100,000<\/code><\/pre>\n\n\n\n<h3 class=\"wp-block-heading\">Explanation:<\/h3>\n\n\n\n<p>When a company sells shares of its stock, it is essentially raising capital, which is reflected in its financial statements. In this scenario, the company is selling <strong>10,000 shares<\/strong> at a <strong>par value of $10 per share<\/strong>. The par value is the nominal or face value assigned to the stock and is significant because it represents the minimum price at which shares can be issued.<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Calculation of Cash Received<\/strong>: The total cash received from this transaction can be calculated by multiplying the number of shares sold by the par value per share:<br>[<br>\\text{Total Cash} = 10,000 \\text{ shares} \\times \\$10\/\\text{share} = \\$100,000.<br>]<br>This amount reflects the total cash inflow to the company, which increases its assets.<\/li>\n\n\n\n<li><strong>Recording the Cash Inflow<\/strong>: In the journal entry, the company debits the <strong>Cash<\/strong> account by $100,000. This debit signifies that the company\u2019s cash assets have increased due to the inflow from the sale of stock.<\/li>\n\n\n\n<li><strong>Issuance of Common Stock<\/strong>: The company also credits the <strong>Common Stock<\/strong> account by $100,000. This entry reflects the issuance of shares and signifies the ownership stake provided to the shareholders in exchange for their investment.<\/li>\n<\/ol>\n\n\n\n<p>It&#8217;s important to note that the par value of stock does not necessarily reflect its market value. In many cases, stocks are sold at a premium (above par value), but in this example, the sale occurs at par value. Therefore, there is no additional entry required for paid-in capital over par.<\/p>\n\n\n\n<p>In summary, the transaction indicates the company\u2019s effective utilization of its authorized stock to raise capital while enhancing its cash reserves and equity base in the balance sheet.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>A company sells 10,000 shares of previously authorized stock at the par value of $10 per share. What&#8217;s the correct entry to record the transaction? The Correct Answer and Explanation is: To record the sale of 10,000 shares of previously authorized stock at a par value of $10 per share, the correct journal entry is [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-154095","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/154095","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=154095"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/154095\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=154095"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=154095"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=154095"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}