LO10–2 Record the issuance of common stock.

Who are considered the “true owners” of a corporation?

Common stockholders.

What does one share of common stock represent?

One unit of ownership in the corporation.

What is authorized stock?

The maximum number of shares the corporation is legally allowed to sell.

• Set in the articles of incorporation

• Think of it as the “ceiling”

• The company will never exceed this number unless it legally amends its charter

Formula for authorized stock?

Authorized = Issued + Unissued.

What is issued stock?

Shares that have been sold to investors

• These shares bring in money (paid‑in capital)

• A company usually does not issue all authorized shares

Formula for issued stock?

Issued = Outstanding + Treasury.

What is outstanding stock?

Shares issued and currently held by investors; these receive dividends.

These are the real ownership shares because:

• They receive dividends

• They have voting rights

• They represent the true ownership of the company

If you want to know who owns the company → look at outstanding shares, not issued.

What is treasury stock?

Shares the company previously issued but later repurchased.; they do not receive dividends or voting rights.

• They are no longer outstanding

• They do NOT receive dividends

• They do NOT have voting rights

• They reduce total stockholders’ equity

Treasury stock is basically “issued but not in public hands.”

Example of these stocks

Suppose a company has:

• Authorized: 10,000 shares

• Issued: 8,000 shares

• Treasury: 2,000 shares

Outstanding = Issued – Treasury = 8,000 – 2,000 = 6,000 shares

Unissued = Authorized – Issued = 10,000 – 8,000 = 2,000 shares

• 6,000 shares are in investors’ hands

• 2,000 shares are held by the company (treasury)

• 2,000 shares have never been sold

What happens when you issue stock?

• You increase Common Stock (par value portion)

• You increase Additional Paid‑In Capital (anything above par)

• You increase Cash

What is par value?

The legal capital per share assigned when the corporation is formed.

• Set in the articles of incorporation

• Often extremely small (like $0.01 or $0.001)

• Has no connection to the stock’s real price

• Used only for accounting entries (splitting Common Stock vs. APIC)

• It’s just a legal formality

• Companies set it extremely low to avoid legal issues

Example of par value

Zoom stock:

• Issued at: $36

• Traded at: $568

• Par value: $0.001

Par value is basically meaningless in the real world.

Does par value equal market value?

No — par value is unrelated to market value.

What is market value?

The current trading price of the stock, unrelated to par value

• Actual trading price

• Changes constantly

• Determined by supply and demand

• Usually MUCH higher than par value

What is no‑par value stock?

Stock with no assigned par value; the entire issuance amount goes to Common Stock.

• Allowed in many states

• Very common for new corporations

• Big companies like Nike and Procter & Gamble also use no‑par stock

• When there’s no par value, the entire amount received goes to Common Stock

What is stated value?

A value assigned to no‑par stock; treated the same as par value in accounting.

• It becomes the “legal capital”

• It determines how much goes to Common Stock vs. APIC

How is no‑par value stock recorded?

Entire amount credited to Common Stock.

Canadian Falcon issues:

• 1,000 shares

• No‑par value common stock

• At $30 per share

What is the journal entry?

Debit Cash 30,000

Credit Common Stock 30,000

Because the stock has no par value, there is no par amount to separate into Common Stock vs. Additional Paid‑In Capital.

How is par value stock recorded?

With par value stock, the company must separate the investor’s payment into two parts:

• Common Stock = shares × par value

  • This represents the legal capital the company must keep in the business.

• Additional Paid‑In Capital = amount above par

  • This represents the extra amount investors paid beyond the tiny par value.

Canadian Falcon issues:

• 1,000 shares

• Par value = $0.01

• Issue price = $30 per share

What is the journal entry?

Debit Cash 30,000

Credit Common Stock 10 (1000 × 0.01)

Credit APIC 29,990

How is stated value stock recorded?

Exactly the same as par value stock.

What is Additional Paid‑In Capital (APIC)?

The amount paid for stock above par or stated value.

Alternative name for Additional Paid‑In Capital?

Paid‑in capital in excess of par.

How do you record stock issued for noncash items (e.g., services)?

Example: 1,000 shares issued for $30,000 of legal services.

Debit legal fees expense $30,000

Credit Common Stock (1000 × 0.01) $10

Credit additional paid-in capital $29,990

Same structure — just replace Cash with the asset or expense received.

What is the key rule for no‑par vs. par/stated value stock?

• No‑par → all goes to Common Stock

• Par/stated → split between Common Stock and APIC