CAPITAL STOCK
CAPITAL STOCK
How is capital stock received recorded?
A company invested money and received capital stock. What is the investors journal entry:
a. debit to investments
b. credit to retained earnings
c. credit to capital stock
d. debit to expense
When a company buys another company's capital stock as an INVESTMENT, it doesn't go into the buying company's 'Capital Stock' account, it goes under the buying company's 'Investments' account. The entry is
Debit 'Investments' $XXX (asset account)
Credit 'Cash' $XXX
[ Exchanging one asset for another ].
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OK, go with c. then. Think of me later when it comes back marked incorrect 
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Perhaps I can explain further. From the info given, the buying company invested (i.e. paid cash for that other company's capital stock). Paying money is a credit to the buying company's 'cash account', which isn't listed as one of your options. The debit has to go to one of either of the two options left - the 'Investments' account or the 'Expense' account.
Buying another company's capital stock as an investment isn't an expense, it's, well, an INVESTMENT.
The capital accounts of the buying company's records are reserved for entering transactions regarding THEIR OWN company's capital stock transactions.
The only exception is when like companies merge, in which case it is possible that the buying company's capital stock accounts would be affected. But your question specifically states that this is an investment activity, not a merger or a buy-out.
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If either of the other two answerers can explain their reasoning, including taking into account the fact that money paid is going to be a credit to some account like 'Cash' or "Accounts Payable' - I would like to know how the other side of the transaction is also going to be a credit as they both claim? Show me the journal entry (please).
I like to learn - enlighten me
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