ACCA Applied Knowledge · Financial Accounting · Capital structure and finance costs
Jarrow Co issues 200,000 $1 ordinary shares at $1.60 each, fully paid in cash. Which journal entry is correct?
Debit cash $320,000, credit share capital $200,000 and credit share premium $120,000. Share capital is recorded at nominal value only, and the amount received above nominal value, $0.60 per share, is share premium within equity.
- ADr Cash $320,000; Cr Share capital $200,000; Cr Share premium $120,000Correct
- BDr Cash $320,000; Cr Share capital $320,000
- CDr Cash $200,000; Cr Share capital $200,000; Cr Share premium $120,000
- DDr Cash $320,000; Cr Share capital $120,000; Cr Share premium $200,000
Explanation
Cash received is 200,000 x $1.60 = $320,000. Nominal value of 200,000 x $1 = $200,000 goes to share capital and the excess of $120,000 goes to share premium. Crediting all $320,000 to share capital ignores the premium.
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