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Sea the World Cruises issued 400,000, $1 par value shares of the 1,000,000 shares authorized for $1,000,000. The entry to record the issuance of the stock includes ______. (Check all that apply.)Multiple select question.credit Additional Paid-in Capital $600,000debit Cash $1,000,000credit Cash $1,000,000credit Common Stock $1,000,000credit Common Stock $1debit Common Stock $1,000,000credit Additional Paid-in Capital $999,999credit Common Stock $400,000

Question

Sea the World Cruises issued 400,000, 1parvaluesharesofthe1,000,000sharesauthorizedfor1 par value shares of the 1,000,000 shares authorized for 1,000,000. The entry to record the issuance of the stock includes ______. (Check all that apply.)Multiple select question.credit Additional Paid-in Capital 600,000debitCash600,000debit Cash 1,000,000credit Cash 1,000,000creditCommonStock1,000,000credit Common Stock 1,000,000credit Common Stock 1debitCommonStock1debit Common Stock 1,000,000credit Additional Paid-in Capital 999,999creditCommonStock999,999credit Common Stock 400,000

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Solution

The correct entries to record the issuance of the stock would be:

  • Debit Cash $1,000,000
  • Credit Common Stock $400,000
  • Credit Additional Paid-in Capital $600,000

Here's why:

  1. Debit Cash 1,000,000:Thisisbecausethecompanyreceived1,000,000: This is because the company received 1,000,000 in cash from the issuance of the stock.

  2. Credit Common Stock 400,000:Thisisbecausethecompanyissued400,000shareswithaparvalueof400,000: This is because the company issued 400,000 shares with a par value of 1 each. The par value is the nominal value of the shares, so 400,000 shares * 1parvalue=1 par value = 400,000.

  3. Credit Additional Paid-in Capital 600,000:Thisisbecausetheinvestorspaidmorethantheparvaluefortheshares.Thecompanyreceived600,000: This is because the investors paid more than the par value for the shares. The company received 1,000,000 in total, but the par value of the shares was only 400,000.Thedifferenceof400,000. The difference of 600,000 is recorded as additional paid-in capital.

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