When ordinary shares are issued at a premium, which journal entry records the transaction?

When ordinary shares are issued at a premium, which journal entry records the transaction?

• A. Dr Bank; Cr Share Capital; Cr Share Premium
• B. Dr Bank; Dr Share Premium; Cr Share Capital
• C. Dr Bank; Cr Share Capital; Cr Share Premium
• D. Dr Bank; Cr Retained Earnings; Cr Share Capital

Answer: (A)

When ordinary shares are issued at a premium, the cash received is recorded as a debit to Bank, while the equity portion is split between the nominal value and the premium. The nominal value of the shares goes to Share Capital, and the excess over nominal value goes to Share Premium. So the journal entry is: Dr Bank; Cr Share Capital; Cr Share Premium. This reflects that the company gathers cash from investors and increases two equity accounts: Share Capital for the par value of the shares, and Share Premium for the extra amount paid above par. The other options would either incorrectly debit an equity account that should be credited (Share Premium) or debiting Retained Earnings, which isn't used for recording share issues.

When ordinary shares are issued at a premium, the cash received is recorded as a debit to Bank, while the equity portion is split between the nominal value and the premium. The nominal value of the shares goes to Share Capital, and the excess over nominal value goes to Share Premium. So the journal entry is: Dr Bank; Cr Share Capital; Cr Share Premium.

This reflects that the company gathers cash from investors and increases two equity accounts: Share Capital for the par value of the shares, and Share Premium for the extra amount paid above par. The other options would either incorrectly debit an equity account that should be credited (Share Premium) or debiting Retained Earnings, which isn't used for recording share issues.