Accounting for Common Stock Issues Accounting for Common Stock Issues Accounting for Common Stock Issues Accounting for Common Stock Issues
Other than consideration received, the issuance of common stock affects only
paid-in capital accounts.
Illustration
Illustration: Assume that Hydro-Slide, Inc. issues 1,000 :
shares of $1 par value common stock at par for. Prepare the journal entry.
Cash 1,000
Common stock (1,000 x $1)
1,000
Accounting for Common Stock Issues Accounting for Common Stock Issues Accounting for Common Stock Issues Accounting for Common Stock Issues
Issuing Par Value Common Stock for Cash
Illustration
Illustration: Assume that Hydro-Slide, Inc. issues 2,000 : shares of $1 par value common stock. Prepare Hydro-Slide’s journal entry if (a) 1,000 share are issued for $1 per share, and (b) 1,000 shares are issued for $5 per share.
Cash 1,000
Common stock (1,000 x $1)
1,000
Cash 5,000
Common stock (1,000 x $1)
1,000
Paid-in capital in excess of par value a.
b.
Accounting for Common Stock Issues Accounting for Common Stock Issues Accounting for Common Stock Issues Accounting for Common Stock Issues
Issuing Par Value Common Stock for Cash
Accounting for Common Stock Issues Accounting for Common Stock Issues Accounting for Common Stock Issues Accounting for Common Stock Issues
Illustration 13-7
Issuing Common Stock for Services or Noncash Assets
Corporations also may issue stock for:
Services (attorneys or consultants).
Noncash assets (land, buildings, and equipment).
Accounting for Common Stock Issues Accounting for Common Stock Issues Accounting for Common Stock Issues Accounting for Common Stock Issues
Cost is either the fair market value of the consideration given up, or the fair market value of the consideration received, whichever is more clearly determinable.
Illustration: Assume that attorneys have helped Jordan Company incorporate. They have billed the company $5,000 for their services. They agree to accept 4,000 shares of $1 par value common stock in payment of their bill. At the time of the exchange, there is no established market price for the stock. Prepare the journal entry for this transaction.
Organizational expense 5,000
Common stock (4,000 x $1) 4,000
Paid-in capital in excess of par 1,000
Accounting for Common Stock Issues Accounting for Common Stock Issues Accounting for Common Stock Issues Accounting for Common Stock Issues
Illustration: Assume that Athletic Research Inc. is an
existing publicly held corporation. Its $5 par value stock is actively traded at $8 per share. The company issues 10,000 shares of stock to acquire land recently advertised for sale at $90,000. Prepare the journal entry for this transaction.
Land (10,000 x $8) 80,000
Common stock (10,000 x $5) 50,000
Paid-in capital in excess of par 30,000
Accounting for Common Stock Issues Accounting for Common Stock Issues Accounting for Common Stock Issues Accounting for Common Stock Issues
Paid-in Capital Paid-in Capital Paid-in Capital Paid-in Capital
Retained Earnings Retained Earnings
Account Account
Retained Earnings Retained Earnings
Account Account
Paid-in Capital in Paid-in Capital in
Excess of Par Excess of Par
Account Account
Paid-in Capital in Paid-in Capital in
Excess of Par Excess of Par
Account Account
Less:
Less:
Treasury Stock Treasury Stock
Account
Less:
Less:
Treasury Stock Treasury Stock
Account
Two Primary Sources of
Equity
Common Stock Common Stock
Account Account
Common Stock Common Stock
Account Account
Preferred Stock Preferred Stock
Account Account
Preferred Stock Preferred Stock
Account Account
Accounting for Treasury Stock Accounting for Treasury Stock Accounting for Treasury Stock Accounting for Treasury Stock
Treasury stock - corporation’s own stock that it has reacquired from shareholders, but not retired.
Corporations purchase their outstanding stock:
1. To reissue the shares to officers and employees under bonus and stock compensation plans.
2. To enhance the stock’s market value.
3. To have additional shares available for use in the acquisition of other companies.
4. To increase earnings per share.
5. To rid the company of disgruntled investors, perhaps to avoid a takeover.
Accounting for Treasury Stock Accounting for Treasury Stock Accounting for Treasury Stock Accounting for Treasury Stock
Purchase of Treasury Stock
Debit Treasury Stock for the price paid to reacquire the shares.
Treasury stock is a contra stockholders’ equity account, not an asset.
Purchase of treasury stock reduces stockholders’ equity.
Accounting for Treasury Stock Accounting for Treasury Stock Accounting for Treasury Stock Accounting for Treasury Stock
Treasury stock (4,000 x $8) 32,000 Cash
Illustration: On February 1, 2008, Mead acquires 4,000 shares of its stock at $8 per share.
Accounting for Treasury Stock Accounting for Treasury Stock Accounting for Treasury Stock Accounting for Treasury Stock
Illustration 13-8
Accounting for Treasury Stock Accounting for Treasury Stock Accounting for Treasury Stock Accounting for Treasury Stock
Stockholders’ Equity with Treasury stock
Both the number of shares issued (100,000), outstanding (96,000), and the number of shares held as treasury (4,000) are disclosed.
Illustration 13-9
Sale of Treasury Stock
Above Cost Below Cost
Both increase total assets and stockholders’
equity.
Accounting for Treasury Stock Accounting for Treasury Stock Accounting for Treasury Stock Accounting for Treasury Stock
Treasury stock 8,000
Illustration: On February 1, 2008, Mead acquires 4,000
shares of its stock at $8 per share. Record the journal entry for the following transaction:
On July 1, Mead sells for $10 per share 1,000 shares of its treasury stock, previously acquired at $8 per share.
Accounting for Treasury Stock Accounting for Treasury Stock Accounting for Treasury Stock
Accounting for Treasury Stock Above Cost
July 1
Paid-in capital treasury stock 2,000
Cash 10,000
A corporation does not realize a gain or suffer a loss from stock transactions with its own stockholders.
Paid-in capital treasury stock 800
Illustration: On February 1, 2008, Mead acquires 4,000
shares of its stock at $8 per share. Record the journal entry for the following transaction:
On Oct. 1, Mead sells an additional 800 shares of treasury stock at $7 per share.
Accounting for Treasury Stock Accounting for Treasury Stock Accounting for Treasury Stock Accounting for Treasury Stock
Oct. 1
Treasury stock
6,400
Cash 5,600
Mead uses Paid-in Capital from Treasury Stock, if available, for the difference between cost and resale price of the shares.
Below Cost
Paid-in capital treasury stock 1,200 Illustration: On February 1, 2008, Mead acquires 4,000
shares of its stock at $8 per share. Record the journal entry for the following transaction:
On Dec. 1, assume that Mead, Inc. sells its remaining 2,200 shares at $7 per share.
Accounting for Treasury Stock Accounting for Treasury Stock Accounting for Treasury Stock Accounting for Treasury Stock
Dec. 1
Retained earnings 1,000
Cash 15,400
Treasury stock
17,600
Below Cost
Limited balance to on hand
Features often associated with preferred stock.