Accounting for common stock issuance affects only paid-in (contributed) capital accounts; no retained profits accounts are impacted.

COMMON STOCK

COMMON STOCK

Issuing Par Value Stock

Par value stock can be issued at par, at a premium (above par), or at a reduced price (below par). Stock can be traded for cash or noncash assets in each circumstance.

Issuing Par Value Stock at the Par Value We record amounts for both the asset(s) received and the par value stock issued when common stock is issued at par value. For example, on June 5, 2011, Dillon Snowboards issued 30,000 shares of $10 par value stock for $300,000 cash, as shown in the following entry.
CreditDebitDescription
300,000Cash 
300,000 Common Stock
 Issued 30,000 shares of $10 par value common stock at par.
Exhibit 13.4 shows the stockholders’ equity of Dillon Snowboards at year-end 2011 (its first year of operations) after income of $65,000 and no dividend payments.
Total AmountDescription
Stockholders’ Equity
Common Stock—$10 par value; 50,000 shares authorized
300,00030,000 shares issued and outstanding
65,000Retained earnings
365,000Total stockholders’ equity

Issuing Par Value Stock at a Premium A premium on stock occurs when a corporation sells its stock for more than par (or stated) value. To illustrate, if Dillon Snowboards issues its $10 par value common stock at $12 per share, its stock is sold at a $2 per share premium.

The premium, also known as paid-in capital in excess of par value, is recorded as equity; it is not revenue and is not included on the income statement. On June 5, 2011, Dillon Snowboards issued 30,000 shares of $10 par value stock at a price of $12 per share.
CreditDebitDescriptionD
360,000Cashjune 5
300,000
60,000

Common Stock, $10 Par Value   
Paid-In Capital in Excess of Par Value, Common      Stock
Sold and issued 30,000 shares of $10 par value common stock at $12 per share.
The Paid-In Capital in Excess of Par Value account is added to the par value of the stock in the equity section of the balance sheet as shown in Exhibit 13.5.
Total AmountDescription
Stockholders’ Equity
Common Stock—$10 par value; 50,000 shares authorized
300,000
60,000
30,000 shares issued and outstanding
Paid-in capital in excess of par value, common stock
65,000Retained earnings
425,000Total stockholders’ equity
Issuing Par Value Stock at a Discount A stock discount happens when a company sells its stock for less than its par (or declared) value. Most states forbid the issue of discounted stock. In places where stock can be offered at a discount, the purchaser becomes contingently responsible to creditors for the discount. If stock is issued at a discount, the difference between the issue price and the par value is debited to a Discount on Common Stock account, which is a counter to the common stock account, and its balance is subtracted from the par value of stock in the equity column of the balance sheet. This is not a cost, and therefore does not reflect on the income statement.

Issuing No-Par Value Stock

When no-par stock is issued and is not assigned a stated value, The sum received by the corporation becomes legal capital and is recorded as Common Stock. This signifies that the whole amount is credited to a stock account with no par value. As an example, suppose a business issues 1,000 shares of no-par stock for $40 cash per share on October 20.
CreditDebitDescriptionD
40,000cash Oct. 20
40,000Common Stock, No-Par Value
Issued 1,000 shares of no-par value common stock at $40 per share

Issuing Stated Value Stock

When no-par stock is issued and a stated value is assigned to it, the stated value becomes legal capital and is deposited to a stated value stock account. If stated value stock is issued for more than stated value (which is usually the case), the excess is credited to Paid-In Capital in Excess of Stated Value, Common Stock, which is shown in the shareholders' equity section.

For example, a company that issues 1,000 shares of no-par common stock with a declared value of $40 per share in exchange for $50 cash per share records this as follows.
CreditDebitDescriptionD

40,000
50,000Cash
Common Stock, $40 Stated Value     
Oct. 20
10,000
 Value, Common Stock Paid-In Capital in Excess of         Stated
Issued 1,000 shares of $40 per share stated value stock at $50 per share.

Issuing Stock for Noncash Assets

In return for its stock, a corporation might obtain assets other than cash. (It can also accept obligations on assets obtained, such as a mortgage on real estate.) The corporation records the assets obtained at their market value on the transaction date. The exchanged stock is recorded at its par (or stated) value, with any excess recorded in the Paid-In Capital in Excess of Par (or Stated) Value account. (If no par stock is issued, the stock is recorded at the market value of the assets.) For example, on June 10, an entry is made to record the receipt of $105,000 in land in exchange for the issuing of 4,000 shares of $20 par value common stock.

CreditDebitDescriptionD
105,000Landjune 10
80,000
Common Stock, $20 Par Value      
25,000Paid-In Capital in Excess of Par Value, Common Stock
Exchanged 4,000 shares of $20 par valuecommon stock for land
A corporation may pay promoters stock in compensation for their services in creating the business, which the corporation reports as Organization Expenses. On June 5, an entry is made to reflect the receipt of $12,000 in services in exchange for 600 shares of $15 par value common stock.
CreditDebitDescriptionD
12,000Organization Expensesjune 5
9,000
Common Stock, $15 Par Value      
3,000Paid-In Capital in Excess of Par Value, Common Stock
Gave promoters 600 shares of $15 par value common stock in exchange for their services
Resources : fundamental accounting principles 20th edition (pdf) John J. Wild , Ken W. Shaw Barbara Chiappetta
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