C is corrent. When stock rights are issued, the issuer makes only a memorandum entry. Upon exercise, the following entry is made:
| Cash |
(purchase price) |
|
| Common stock |
|
(par) |
| APIC |
|
(plug) |
Therefore, when the purchase price exceeds the par value, additional paid-in capital would be credited for the excess of the purchase price over the par value of the stock.
A is incorrect. When the purchase price is equal to the par value of the stock, common stock would be credited for the full purchase price (par value).
| Cash |
(purchase price) |
|
| Common stock |
|
(par) |
| APIC |
|
(plug) |
Therefore, when the purchase price exceeds the par value, additional paid-in capital would be credited for the excess of the purchase price over the par value of the stock.
B is incorrect because when the purchase price is less than the par value, additional paid-in capital would be debited.
| Cash |
(purchase price) |
|
| Common stock |
|
(par) |
| APIC |
|
(plug) |
Therefore, when the purchase price exceeds the par value, additional paid-in capital would be credited for the excess of the purchase price over the par value of the stock.
D is incorrect. When the purchase price is equal to the par value of the stock, common stock would be credited for the full purchase price (par value).
| Cash |
(purchase price) |
|
| Common stock |
|
(par) |
| APIC |
|
(plug) |
Therefore, when the purchase price exceeds the par value, additional paid-in capital would be credited for the excess of the purchase price over the par value of the stock.
