6.3: Issuing Stock for Cash
A corporation may issue stock to raise money. “Issue” means to sell the shares of stock for the first time. If the company issues only one type of stock, it is common stock. The investors become owners of the company and are called stockholders.
A journal entry must be recorded when a corporation issues stock.
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Issued 15,000 shares of $10 par common stock for $10 per share.
Account Debit Credit ▲ Cash 150,000 (15,000 x $10) - Cash received ▲ Common Stock 150,000 (15,000 x $10) - Stock issued at par value Par value is an amount assigned to each share of stock when it is authorized. Notice in this case the par value equals the issue price per share.
▲ Cash is an asset account that is increasing .
▲ Common Stock is a stockholders’ equity account that is increasing .
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Issued 15,000 shares of $10 par common stock for $12 per share.
Account Debit Credit ▲ Cash 180,000 (15,000 x $12) - Cash received ▲ Common Stock 150,000 (15,000 x $10) - Stock issued at par value ▲ Paid-in Capital in Excess of Par - Common Stock 30,000 (15,000 x $ 2) - Premium on the common stock issued Here the issue price is greater than the par value. The Common Stock account can only be credited in multiples of the par value per share. The other $2 per share is credited to the Paid-in Capital in Excess of Par - Common Stock account.
▲ Cash is an asset account that is increasing .
▲ Common Stock is a stockholders’ equity account that is increasing .
▲ Paid-in Capital in Excess of Par - Common Stock is a stockholders’ equity account that is increasing .
Besides common stock, a corporation may also issue preferred stock. This type of stock has a more predictable dividend payment, which will be covered later.
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Issued 1,000 shares of $100 par preferred stock for $105 per share.
Account Debit Credit ▲ Cash 105,000 (1,000 x $105) - Cash received ▲ Common Stock 100,000 (1,000 x $100) - Stock issued at par value ▲ Paid-in Capital in Excess of Par - Common Stock 5,000 (1,000 x $5) - Premium on the preferred stock issued The journal entry for issuing preferred stock is very similar to the one for common stock. This time Preferred Stock and Paid-in Capital in Excess of Par - Preferred Stock are credited instead of the accounts for common stock.
▲ Cash is an asset account that is increasing .
▲ Preferred Stock is a stockholders’ equity account that is increasing .
▲ Paid-in Capital in Excess of Par - Preferred Stock is a stockholders’ equity account that is increasing .
Information about preferred stock might also be presented in one of the following two ways:
Example 1: A corporation issues 1,000 shares of $1 preferred, $100 par stock for $105 per share.
Example 2: A corporation issues 1,000 shares of 1% preferred, $100 par stock for $105 per share.
The extra dollar or percentage information given relates to the cash dividend amount per share on the preferred stock. It may be stated directly as a dollar amount, such as $1. It may also be stated as a percentage, such as 1% of the par value of $100, which also results in $1 per share. This $1 or 1% is not a factor in the journal entry for issuing the preferred stock.