How does Par Value stock issuance affect Common Stock and Additional paid-in capital?

How does Par Value stock issuance affect Common Stock and Additional paid-in capital?

• A. Cash is debited for total amount of stock sale, Common Stock increases (credited) in amount of par value, and any additional funds are credited to the additional paid in capital account
• B. Cash is debited for par value, Common Stock increases by the full amount, APIC unaffected
• C. Cash is debited for total amount of stock sale, Common Stock increases by par value, and APIC credited for excess over par
• D. Cash is debited for total amount, Common Stock increases by full amount, APIC credited for par value

Answer: (A)

When you issue par value stock for cash, you record the full cash received as a debit to Cash, credit Common Stock for the total par value of the shares issued, and credit Additional Paid-In Capital for any amount above the par value. This is because Common Stock reflects the legal par value underpinning the shares, while APIC captures the excess investors pay over that par value. For example, issuing 1,000 shares with a $10 par value at $12 per share would debit Cash for $12,000, credit Common Stock for $10,000, and credit APIC for $2,000. If issued exactly at par, APIC would be zero.

When you issue par value stock for cash, you record the full cash received as a debit to Cash, credit Common Stock for the total par value of the shares issued, and credit Additional Paid-In Capital for any amount above the par value. This is because Common Stock reflects the legal par value underpinning the shares, while APIC captures the excess investors pay over that par value. For example, issuing 1,000 shares with a $10 par value at $12 per share would debit Cash for $12,000, credit Common Stock for $10,000, and credit APIC for $2,000. If issued exactly at par, APIC would be zero.