Stock split is the process of dividing the current share number into multiple new shares to boost the stock liquidity. The company simply increase the number of outstanding share by a specific time and keep the total dollar value of share the same. Price per share will decrease align with the number of share increases. The company needs to reverse the treasury stock with common stock and the main advantage of the plantwide overhead rate method is: additional paid-in capital. The company needs to record cash consideration and reverse the treasury stock.

Overall, the journal entries for the issuance of common stock will be as follows. Let’s assume that ABC Corporation issues 50,000 shares with the par value of $10 per share for cash of $500,000. The company usually sets an authorized share higher than their current need. The company spends $ 5.5 million to purchase the shares and keep them on the balance sheet. The company will be liable to the shareholders in case of the market price fall below par value. The common stock can be issued with par value and without par value.

Typical Common Stock Transactions

Total stock par value is the amount that protects the corporate creditor in the case of liquidation. The shareholders are not allowed to withdraw the total capital from the company. Issue common stock is the process of selling the stock to the capital market. Only listed company can issue stock to the capital market and the investor will be able to purchase the share.

1. When a company has more than one class of stock, it usually keeps a separate additional paid-in capital account for each class.
2. Par value is not even a reliable indicator of the price at which shares can be issued.
3. A purchase can also create demand for the stock, which in turn raises the market price of the stock.
4. Before understanding the accounting for the allotment of common stock, it is crucial to know what it is.

Issuing Common Stock with a Par Value in Exchange for Cash

Similarly, some companies may offer stock to pay suppliers for their products or services. Nonetheless, the credit side will remain the same in most share issues. The accounting treatment is the same way as all the types of issuance of common stock as we have covered above.

In most cases, the share premium account involves recording excess funds received from new share issues. The differentiation between the two accounts depends on the share’s par value. Accounting standards jobkeeper require companies to recognize the finance received from issuing shares in the two accounts. However, the share capital account only holds the par value for the issued shares. Furthermore, this account doesn’t necessarily include the finance received from the issuance of shares.

The Cash account increases with a debit for $45 times 1,000 shares, or $45,000. The Preferred Stock account increases for the par value of the preferred stock, $8 times 1,000 shares, or $8,000. In the company as a corporation, we may issue the common stock for cash for expanding the business operation. Likewise, we need to make the journal entry for issuing the common stock in order to account for the increase in the capital section of the equity on the balance sheet. The journal entries for the issuance of common stock impact three accounts. The first involves the debit side, which usually includes the account to record the compensation.

Resale the Treasury Stock (stock buyback)

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. As mentioned, the share capital account will only include the par value of the shares. The excess amount of $50,000 ($150,000 – $100,000) ended up on the share premium account. The debit side will include the full amount of the finance received. However, if there is such discount stock, the accounting treatment would treat such discount as a reduction of par value recorded as a contra account of common stock account. This discount on common stock is not an expense in the income statement; however, as mentioned above, it is treated as a reduction of par value common stock which is presented in the balance sheet.

Issuance of common stock journal entry

The company can retire stock by buyback the outstanding stock from the market. So it means they need to record the common stock to treasury stock before retiring the stock. Company ZZZ issues 100,000 shares of $ 1 par value common stock into the market for $ 100 per share. The common stock will be classified as treasury stock after the company’s buyback from the market. Par Value or Face Value or nominal value is the value state on the share or bond. Common Share par value is the legal value state in the company article of memorandum.

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. Common stock represents a company’s shares that provide various features. These features include the right to receive dividends and voting rights.

They are the authorized shares that sold to the investors in the market. They will receive cash as the number of shares are sold to the investor. Moreover, the company may issue a share to acquire another company by giving the business owner share equity. The common stock that company buyback from the market is recorded as treasury stock in the balance sheet. It is the negative balance report in the equity section in the balance sheet.

The company can make the journal entry for the issuance of common stock for cash at par value by debiting the cash account and crediting the common stock account. Since 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. 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 $ 250,000. The journal entry for issuing the common stock for cash will increase both total assets and total equity on the balance sheet.

However, this value does not represent the finance that the company receives for underlying shares. The second feature that differentiates common stock from others is voting rights. These voting rights allow the shareholders to dictate how the company operates. For example, they can elect the board of directors and vote on a company’s policies. However, the same rights are not a part of the other types of stock that companies offer, for instance, preferred stock.