Q: How would you write this in a journal entry: a company issued 2,660 shares of its common stock after $31,360 in cash and computer equipment with a fair market value of $43,120 were received.
A: The journal entry would be:
DR Bank $31,360 DR Computer equipment $43,120 CR Ordinary Share Capital $74,480 ($31,360 + $43,120)
To explain the above, remember that what is happening here is we are getting more money and more computer equipment, which are both assets. Since assets increase on the left side they are both debited. The credit goes to ordinary share capital, which is a type of owner's equity for a company. Owner's equity exists and increases on the right side, so this is credited.
The entry above is a composite entry (meaning an entry where there is more than one debit or credit). You can also write this in two separate entries, one for the cash received and one for the computer equipment received. In both these entries the credit would be to ordinary share capital (only for the value of the cash and the computer equipment individually):
DR Bank $31,360 CR Ordinary Share Capital $31,360
DR Computer equipment $43,120 CR Ordinary Share Capital $43,120
FYI Ordinary share capital is the term used to describe ordinary shares (common stock) in most countries around the world. A different term may be used in the U.S.
Hope that makes sense and helps Sarah! Good luck!
Best, Michael Celender
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