8RQ - Horngren'S Financial And Managerial Accounting

Question

What account is used to record the premium when issuing common stock? What type of account is this?

Step-by-Step Solution

Answer

Paid-In Capital in Excess of Par is used to record the premium when issuing common stock and is an equity account.

Step 1: Introduction to the topic

Capital in excess of par is the sum paid by investors more for their shares of stock to a corporation for its stock than the par value of such shares.

Step 2: Account and its type

Paid-In Capital in Excess of Par—Common is to be used to record the premium when issuing common stock. Capital in excess of par exceeds the par value of the stock paid by investors to a company.

For example, if a shareholder pays $20 for a $10 par value stock, $10 would be recorded as common stock, and $10 would be recorded as paid-in capital in excess of par.