Question

multiple choice question

when shares of stock that were issued to the public are later bought and sold among investors on the stock exchange, the issuing corporation _______

records a gain if the stock price is sold at a higher price than when the corporation originally issued the stock
debits treasury stock and credits common stock
does not record any entry because it does not receive or give anything of value
debits cash and credits common stock

Explanation:

Analyze the nature of the transaction

The transaction describes shares of stock being bought and sold among investors on a public stock exchange (the secondary market) after their initial issuance.

Determine the impact on the issuing corporation

In secondary market transactions, ownership of existing shares transfers directly from one investor to another. The issuing corporation is not a party to these trades, receives no cash, and gives up no assets or shares. Therefore, no journal entry is recorded by the corporation.

Answer:

• records a gain if the stock price is sold at a higher price than when the corporation originally issued the stock
• debits Treasury Stock and credits Common Stock
• does not record any entry because it does not receive or give anything of value (Correct answer)
• debits Cash and credits Common Stock