6.4: Issuing Stock for Non-Cash Assets
Stock may be issued for assets other than cash, such as services rendered, land, equipment, vehicles, accounts receivable, and inventory. This is more common in small corporations than in larger ones. The journal entries are similar to those for issuing stock for cash. In this case, the value of either the stock or the asset must be known. The assumption is that both the asset and the stock have the same value.
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Issued 10,000 shares of $20 par common stock for land. The fair market value of the stock is $20 per share.
Account Debit Credit ▲ Land 200,000 (10,000 x $20) - Value of the land ▲ Common Stock 200,000 (10,000 x $20) - Stock issued at par value When issuing stock for non-cash assets, it is assumed the value of the asset (land) and the value of the stock are equal. Notice that the par value equals the issue price per share. The value of the stock can be calculated and the value of the land is set equal to that same amount.
▲ Land is an asset account that is increasing .
▲ Common Stock is a stockholders’ equity account that is increasing .
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Issued 10,000 shares of $20 par common stock for land. The fair market value of the stock is $25 per share.
Account Debit Credit ▲ Land 250,000 (10,000 x $25) - Value of the land ▲ Common Stock 200,000 (10,000 x $20) - Stock issued at par value ▲ Paid-in Capital in Excess of Par - Common Stock 50,000 (10,000 x $ 5) - Premium on the common stock issued The value of the stock ($25 per share) is given; the value of the land equals that of the stock. Remember, the Common Stock account can only be credited for the par value per share. The Paid-in Capital in Excess of Par - Common Stock account is used for the difference between the value of the land and the stock’s total par value.
▲ Land 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 .
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Issued 10,000 shares of $20 par common stock for land. The fair market value of the land is $250,000.
Account Debit Credit ▲ Land 250,000 $250,000 - Value of the land ▲ Common Stock 200,000 (10,000 x $20) - Stock issued at par value ▲ Paid-in Capital in Excess of Par - Common Stock 50,000 $250,000 - 200,000 - Premium on the common stock issued The value of the land is given; the value of the stock equals that of the land. Remember, the Common Stock account can only be credited for the par value per share. The Paid-in Capital in Excess of Par - Common Stock account is usedfor the difference between the value of the land and the stock’s total par value.
▲ Land 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.
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Issued 1,000 shares of $10 par common stock for services provided by an attorney. The fair market value of the stock is $10 per share.
Account Debit Credit ▲ Organization Costs 10,000 (1,000 x $10) - Value of the services provided ▲ Common Stock 10,000 (1,000 x $10) - Stock issued at par value Organization Costs are expenses incurred to start a business, such as legal fees. This is an asset account. Sometimes the service providers are given stock rather than cash for their services. When issuing stock for non-cash assets, it is assumed the value of the asset (organization costs) and the value of the stock that is issued are equal. Notice that the par value equals the issue price per share.
▲ Organization Costs is an asset account that is increasing .
▲ Common Stock is a stockholders’ equity account that is increasing .
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Issued 1,000 shares of $10 par common stock for services provided by an engineer. The fair market value of the stock is $12 per share.
Account Debit Credit ▲ Organization Costs 12,000 (1,000 x $12) - Value of the land ▲ Common Stock 10,000 (1,000 x $10) - Stock issued at par value ▲ Paid-in Capital in Excess of Par - Common Stock 2,000 (1,000 x $ 2) - Premium on the common stock issued The market value per share of the stock, $12, is given. Therefore, the value of the organization costs can be calculated by multiplying the $12 times the number of shares issued. Remember, the Common Stock account can only be credited for the par value of $10 per share, so the Paid-in Capital in Excess of Par - Common Stock account is used for the $2 per share difference.
▲ Organization Costs 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 .