![]() ![]() If the total value exceeds the par or stated value of the stock issued, the value in excess of the par or stated value is added to the additional paid‐in‐capital (or paid‐in‐capital in excess of par) account. If the stock's market value is not yet determined (as would occur when a company is just starting), the fair market value of the assets or services received is used to value the transaction. The cost of an asset received in exchange for a corporation's stock is the market value of the stock issued. If corporations issue stock in exchange for assets or as payment for services rendered, a value must be assigned using the cost principle. If Big City Dwellers issued 1,000 shares of its $1 par value preferred stock for $100 per share, the entry to record the sale would increase (debit) cash by $100,000 (1,000 shares × $100 per share), increase (credit) preferred stock by the par value, or $1,000 (1,000 shares × $1 par value), and increase (credit) additional paid‐in‐capital-preferred stock for the difference of $99,000. Preferred stock may have a call price, which is the amount the “issuing” company could pay to buy back the preferred stock at a specified future date. A separate set of accounts should be used for the par value of preferred stock and any additional paid‐in‐capital in excess of par value for preferred stock. The sale of preferred stock is accounted for using these same principles. If a corporation has both par value and no‐par value common stock, separate common stock accounts must be maintained. If the Board of Directors has not specified a stated value, the entire amount received when the shares are sold is recorded in the common stock account. When no‐par value stock is issued and the Board of Directors establishes a stated value for legal purposes, the stated value is treated like the par value when recording the stock transaction. If the Big City Dwellers sold their $1 par value stock for $5 per share, they would receive $25,000 (5,000 shares × $5 per share) and would record the difference between the $5,000 par value of the stock (5,000 shares × $1 par value per share) and the cash received as additional paid‐in‐capital in excess of par value (often called additional paid‐in‐capital). ![]() The sale of the stock is recorded by increasing (debiting) cash and increasing (crediting) common stock by $5,000. When a company such as Big City Dwellers issues 5,000 shares of its $1 par value common stock at par for cash, that means the company will receive $5,000 (5,000 shares × $1 per share). This section demonstrates how to account for stock transactions.Ĭommon stock. The Cost of Goods Manufactured Schedule.Managerial and Cost Accounting Concepts.Financial Statement Analysis Limitations.Preparing the Statement: Indirect Method.Balance Sheet: Classification, Valuation.The Balance Sheet: Stockholders' Equity. ![]()
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