When issuing common stock for cash above par value, the par value is credited to which account?

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Prepare for the WGU ACCT2350 Intro to Business Accounting Exam. Practice with multiple choice questions and detailed solutions to sharpen your accounting skills. Master your exam with confidence!

Multiple Choice

When issuing common stock for cash above par value, the par value is credited to which account?

Explanation:
When a company issues common stock for cash above par value, the cash received is recorded as a debit to Cash for the total amount. The par value portion of the proceeds is credited to the Common Stock (par value) account, and the excess over par is credited to Additional Paid-In Capital. Retained Earnings isn’t affected by stock issuance, since it reflects accumulated profits, and Treasury Stock relates to shares the company has repurchased, not new issues. So the par value goes to Common Stock (par value).

When a company issues common stock for cash above par value, the cash received is recorded as a debit to Cash for the total amount. The par value portion of the proceeds is credited to the Common Stock (par value) account, and the excess over par is credited to Additional Paid-In Capital. Retained Earnings isn’t affected by stock issuance, since it reflects accumulated profits, and Treasury Stock relates to shares the company has repurchased, not new issues. So the par value goes to Common Stock (par value).

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