{"id":815,"date":"2015-05-13T17:42:35","date_gmt":"2015-05-13T17:42:35","guid":{"rendered":"https:\/\/courses.candelalearning.com\/finacct2x10xmaster\/?post_type=chapter&p=815"},"modified":"2015-06-02T17:06:55","modified_gmt":"2015-06-02T17:06:55","slug":"characteristics-of-common-preferred-and-treasury-stock","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/clinton-finaccounting\/chapter\/characteristics-of-common-preferred-and-treasury-stock\/","title":{"raw":"Journal Entries to Issue Stock","rendered":"Journal Entries to Issue Stock"},"content":{"raw":"
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Stock issuances <\/strong><\/h4>\r\nEach share of common or preferred capital stock either has a par value or lacks one. The corporation\u2019s charter determines the par value printed on the stock certificates issued. Par value may be any amount\u20141 cent, 10 cents, 16 cents,\u00a0 $\u00a01,\u00a0 $5, or\u00a0 $100. Low par values of\u00a0$10 or less are common in our economy.\r\n\r\nPar value gives no clue as to the stock\u2019s market value. Shares with a par value of\u00a0 $5 have traded (sold) in the market for more than\u00a0$600, and many\u00a0 $100 par value preferred stocks have traded for considerably less than par. Par value is not even a reliable indicator of the price at which shares can be issued. New corporations can issue shares at prices well in excess of par value or for less than par value if state laws permit. Par value gives the accountant a constant amount at which to record capital stock issuances in the capital stock accounts. As stated earlier, the total par value of all issued shares is generally the legal capital of the corporation.\r\n\r\nTo record the issue of common (or preferred) stock, you will:\r\n\r\n\r\n\r\n\r\n\r\n
Debit<\/strong><\/td>\r\nCash or other\u00a0item received<\/td>\r\n\u00a0(shares issued x price paid per share) or market value of item received<\/td>\r\n<\/tr>\r\n
Credit<\/strong><\/td>\r\nCommon (or Preferred) Stock<\/td>\r\n\u00a0(shares issued x PAR value)<\/td>\r\n<\/tr>\r\n
Credit\u00a0\u00a0\u00a0 <\/strong><\/td>\r\nPaid in capital in excess of par value, common (or preferred) stock<\/td>\r\n(difference between value received and par value of stock)<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nKeep in mind your journal entry must always balance <\/strong>(total debits must equal total credits).\u00a0 What happens if we don't have a par value?\u00a0 Watch this video to demonstrate par and no-par value transactions.\u00a0 Notice how the accounting is the same for common and preferred stock.\u00a0 After the video, we will look at some more examples.\r\n\r\nhttps:\/\/youtu.be\/PvAVHdQ6ctk\r\n\r\nTo illustrate the issuance of stock for cash, assume a company issues 10,000\u00a0shares of\u00a0$20 par value common stock at $22 per share. The following entry records the issuance:\r\n\r\n\r\n\r\n\r\n\r\n\r\n
\n\n \r\n\r\nCash (10,000 shares x $22 per share)<\/strong><\/td>\r\n\n\nDebit<\/strong>\r\n\r\n220,000<\/strong><\/td>\r\n\n\n\u00a0Credit<\/strong>\r\n\r\n <\/td>\r\n<\/tr>\r\n
Common Stock,\u00a0$20 par\u00a0(10,000 shares x $20 par per share)<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n200,000<\/strong><\/td>\r\n<\/tr>\r\n
Paid-In Capital in Excess of Par Value\u2014Common (220,000 cash - 200,000 par)<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n20,000<\/strong><\/td>\r\n<\/tr>\r\n
To record the issuance of 10,000 shares of stock for cash.<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nNotice that the credit to the Common Stock account is the par value\u00a0times the number of shares issued. The accountant credits the excess over par value ($20,000) to Paid-In Capital in Excess of Par Value; it is part of the paid-in capital contributed by the stockholders. Thus, paid-in capital in excess of par (or stated) value represents capital contributed to a corporation in addition to that assigned to the shares issued and recorded in capital stock accounts. The paid-in capital section of the balance sheet appears as follows:\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
Paid-in capital:<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n<\/tr>\r\n
Common stock\u2014par value, $20; 10,000 shares<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n<\/tr>\r\n
\u00a0\u00a0\u00a0 authorized, issued and outstanding<\/strong><\/td>\r\n$ 200,000<\/strong><\/td>\r\n<\/tr>\r\n
Paid-in capital in excess of par value\u2014common<\/strong><\/td>\r\n20,000<\/strong><\/span><\/td>\r\n<\/tr>\r\n
\u00a0\u00a0\u00a0 Total paid-in capital<\/strong><\/td>\r\n$ 220,000<\/strong><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nWhen it issues no-par stock with a stated value, a company carries the shares in the capital stock account at the stated value. Any amounts received in excess of the stated value per share represent a part of the paid-in capital of the corporation and the company credits them to Paid-In Capital in Excess of Stated Value. The legal capital of a corporation issuing no-par shares with a stated value is usually equal to the total stated value of the shares issued.\r\n\r\nTo illustrate, assume that the DeWitt Corporation, which is authorized to issue 10,000 shares of common stock without par value, assigns a stated value of\u00a0 $20 per share to its stock. DeWitt issues the 10,000 shares for cash at\u00a0$ 23 per share. The entry to record this transaction is:\r\n\r\n\r\n\r\n\r\n\r\n\r\n
\n\n \r\n\r\nCash (10,000 shares x $23 per share)<\/strong><\/td>\r\n\n\nDebit<\/strong>\r\n\r\n230,000<\/strong><\/td>\r\n\n\n\u00a0Credit<\/strong>\r\n\r\n <\/td>\r\n<\/tr>\r\n
\u00a0\u00a0\u00a0 Common Stock, $20 stated value\u00a0(10,000 shares x $20 stated value per share)<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n200,000<\/strong><\/td>\r\n<\/tr>\r\n
\u00a0\u00a0\u00a0 Paid-In Capital in Excess of Stated Value\u2014Common (230,000 cash - 200,000 stated)<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n30,000<\/strong><\/td>\r\n<\/tr>\r\n
\u00a0 To record issuance of 10,000 shares of stock for cash.<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nDeWitt carries the\u00a0$ 30,000 received over and above the stated value of\u00a0 $200,000 permanently as paid-in capital because it is a part of the capital originally contributed by the stockholders. However, the legal capital of the DeWitt Corporation is\u00a0$200,000.\r\n\r\nA corporation that issues no-par stock without a stated value credits the entire amount received to the capital stock account. For instance, consider the DeWitt Corporation\u2019s issuance 10,000 shares of no-par stock for $250,000. If no stated value had been assigned, the entry would have been as follows:\r\n\r\n\r\n\r\n\r\n\r\n
\n\n \r\n\r\nCash <\/strong><\/td>\r\n\n\nDebit<\/strong>\r\n\r\n250,000<\/strong><\/td>\r\n\n\n\u00a0Credit<\/strong>\r\n\r\n <\/td>\r\n<\/tr>\r\n
\u00a0\u00a0\u00a0 Common Stock, no par<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n250,000<\/strong><\/td>\r\n<\/tr>\r\n
\u00a0 To record issuance of 10,000 shares for cash.<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nSince the company may issue shares at different times and at differing amounts, its credits to the capital stock account are not uniform amounts per share. This contrasts with issuing par value shares or shares with a stated value.\u00a0 The actual capital contributed by stockholders is\u00a0 $250,000. In some states, the entire amount received for shares without par or stated value is the amount of legal capital. The legal capital in this example would then be equal to\u00a0$ 250,000.\r\n\r\nAs you saw in the video, stock can be issued for cash or for other assets.\u00a0 When issuing capital stock for property or services, companies must determine the dollar amount of the exchange. Accountants generally record the transaction at the fair value of (1) the property or services received or (2) the stock issued, whichever is more clearly evident.\r\n\r\nTo illustrate, assume that the owners of a tract of land deeded it to a corporation in exchange for 1,000 shares of $12 par value common stock.\u00a0 The land had a\u00a0market value of\u00a0$14,000. The required entry is:\r\n\r\n\r\n\r\n\r\n\r\n\r\n
\n\n \r\n\r\nLand (use market value)<\/strong><\/td>\r\n\n\nDebit<\/strong>\r\n\r\n14,000<\/strong><\/td>\r\n\n\nCredit<\/strong>\r\n\r\n <\/td>\r\n<\/tr>\r\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Common Stock, $12 par\u00a0(1,000 shares x $12 par)<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n12,000<\/strong><\/td>\r\n<\/tr>\r\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Paid-In Capital in Excess of Par Value\u2014Common (14,000 market value - 12,000 par)<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n2,000<\/strong><\/td>\r\n<\/tr>\r\n
\u00a0 To record the receipt of land for capital stock.<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nAs another example, assume a firm issues 100 shares of\u00a0preferred stock with a par value of\u00a0 $40 per share in exchange for legal services received in organizing as a corporation.\u00a0 The attorney previously agreed to a price of\u00a0 $5,000 for these legal services but decided to accept stock in lieu of cash. In this example, the correct entry is:\r\n\r\n\r\n\r\n\r\n\r\n\r\n
\n\n \r\n\r\nOrganization Costs (use agreed upon price)<\/strong><\/td>\r\n\n\nDebit<\/strong>\r\n\r\n5,000<\/strong><\/td>\r\n\n\n\u00a0Credit<\/strong>\r\n\r\n <\/td>\r\n<\/tr>\r\n
\u00a0\u00a0\u00a0\u00a0 Preferred Stock, $40 par\u00a0(100 shares x $40 par)<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n4,000<\/strong><\/td>\r\n<\/tr>\r\n
\u00a0\u00a0\u00a0\u00a0 Paid-In Capital in Excess of Par Value\u2014Preferred (5,000 price - 4,000 par)<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n1,000<\/strong><\/td>\r\n<\/tr>\r\n
\u00a0 To record the receipt of legal services for capital stock.<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\nhttp:\/\/www.openassessments.com\/assessments\/1211\r\n\r\n<\/div>\r\n<\/div>\r\n<\/div>","rendered":"
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Stock issuances <\/strong><\/h4>\n

Each share of common or preferred capital stock either has a par value or lacks one. The corporation\u2019s charter determines the par value printed on the stock certificates issued. Par value may be any amount\u20141 cent, 10 cents, 16 cents,\u00a0 $\u00a01,\u00a0 $5, or\u00a0 $100. Low par values of\u00a0$10 or less are common in our economy.<\/p>\n

Par value gives no clue as to the stock\u2019s market value. Shares with a par value of\u00a0 $5 have traded (sold) in the market for more than\u00a0$600, and many\u00a0 $100 par value preferred stocks have traded for considerably less than par. Par value is not even a reliable indicator of the price at which shares can be issued. New corporations can issue shares at prices well in excess of par value or for less than par value if state laws permit. Par value gives the accountant a constant amount at which to record capital stock issuances in the capital stock accounts. As stated earlier, the total par value of all issued shares is generally the legal capital of the corporation.<\/p>\n

To record the issue of common (or preferred) stock, you will:<\/p>\n\n\n\n\n\n
Debit<\/strong><\/td>\nCash or other\u00a0item received<\/td>\n\u00a0(shares issued x price paid per share) or market value of item received<\/td>\n<\/tr>\n
Credit<\/strong><\/td>\nCommon (or Preferred) Stock<\/td>\n\u00a0(shares issued x PAR value)<\/td>\n<\/tr>\n
Credit\u00a0\u00a0\u00a0 <\/strong><\/td>\nPaid in capital in excess of par value, common (or preferred) stock<\/td>\n(difference between value received and par value of stock)<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Keep in mind your journal entry must always balance <\/strong>(total debits must equal total credits).\u00a0 What happens if we don’t have a par value?\u00a0 Watch this video to demonstrate par and no-par value transactions.\u00a0 Notice how the accounting is the same for common and preferred stock.\u00a0 After the video, we will look at some more examples.<\/p>\n