Explain the accounting procedures for issuing shares of stock?

Expert Solution

To record the issue of common (or preferred) stock, you will:

Debit	Cash or other item received	(shares issued x price paid per share) or market value of item received
Credit	Common (or Preferred) Stock	(shares issued x PAR value)
Credit	Paid in capital in excess of par value, common (or preferred) stock	(difference between value received and par value of stock)

Keep in mind your journal entry must always balance (total debits must equal total credits).

To illustrate, assume that the Miami Corporation, which is authorized to issue 10,000 shares of common stock without par value, assigns a stated value of $20 per share to its stock. Miami issues the 10,000 shares for cash at $ 23 per share. The entry to record this transaction is:

Particulars	Debit	Credit
Cash (10,000 shares x $23 per share)	230,000
Common Stock, $20 stated value (10,000 shares x $20 stated value per share)		200,000
Paid-In Capital in Excess of Stated Value—Common (230,000 cash – 200,000 stated)		30,000
To record issuance of 10,000 shares of stock for cash.

Miami carries the $ 30,000 received over and above the stated value of $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 Miami Corporation is $200,000.

ekkarill92 answered 1 year ago

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