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A corporation issues 1,000 preference shares of $100 par value at $105 per share for cash. What are the credits to preference share capital and to preference share premium, respectively?
A$100,000 and $105,000
B$105,000 and $0
C$100,000 and $5,000
D$95,000 and $10,000
Answer & Solution
Correct answer: C. $100,000 and $5,000
1. Preference share capital is credited at par: $100 \times 1{,}000 = \$100{,}000$.
2. Cash received = $105 \times 1{,}000 = \$105{,}000$.
3. Premium per share = $105 − $100 = \$5$, so premium = $5 \times 1{,}000 = \$5{,}000$.
4. Credits: preference share capital $100,000; preference share premium $5,000.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §6.3 "Issuing Stock for Cash", p.247_
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