The no-par value stock refers to the common stock that has no par value. This means that the stock is issued without assigning a stated value. Therefore, the amount that a corporation received, both cash or non-cash assets, becomes the legal capital; hence such amount is recorded entirely as common stock.
Below is the journal entry for the no par value common stock :. As you can see from the journal entry above, the total common stock equal to the cash received from investor.
In some cases, the common stock can also be issued a no-par value at an assigned stated value. In this case, the stated value becomes the legal capital while the amount received in excess of the stated value is treated as contributed capital in excess of the stated value of the common stock.
This contributed capital in excess of stated value is recorded and presented separately in the equity section of the balance sheet. The common stock, sometimes, is issued for non-cash assets; for example in exchange for land or building, or sometimes in exchange for not paying organization expenses to the promoters. Such non-cash assets are then recorded at the market values as of the date of transactions.
Notice on the partial balance sheet that the number of common shares outstanding changes when treasury stock transactions occur. Initially, the company had 10, common shares issued and outstanding.
The repurchased shares are no longer outstanding, reducing the total outstanding to 9, shares. In , it acquired additional shares at a cost of 3, million CHF, raising its total treasury stock to 4, million CHF at the end of , primarily due to a share buy-back program.
Reissuing Treasury Stock above Cost Management typically does not hold treasury stock forever. The company can resell the treasury stock at cost, above cost, below cost, or retire it. If La Cantina reissues of its treasury shares at cost?
This has the effect of increasing an asset, Cash, with a debit, and decreasing the Treasury Stock account with a credit. The original cost paid for each treasury share,? The journal entry to record this sale of the treasury shares at cost is:. If the treasury stock is resold at a price higher than its original purchase price, the company debits the Cash account for the amount of cash proceeds, reduces the Treasury Stock account with a credit for the cost of the treasury shares being sold, and credits the Paid-in Capital from Treasury Stock account for the difference.
Even though the difference—the selling price less the cost—looks like a gain, it is treated as additional capital because gains and losses only result from the disposition of economic resources assets.
Treasury Stock is not an asset. Assume that on August 1, La Cantina sells another shares of its treasury stock, but this time the selling price is? The Cash Account is increased by the selling price,? The difference is recorded as a credit of? Reissuing Treasury Stock Below Cost If the treasury stock is reissued at a price below cost, the account used for the difference between the cash received from the resale and the original cost of the treasury stock depends on the balance in the Paid-in Capital from Treasury Stock account.
Any balance that exists in this account will be a credit. The transaction will require a debit to the Paid-in Capital from Treasury Stock account to the extent of the balance. If the transaction requires a debit greater than the balance in the Paid-in Capital account, any additional difference between the cost of the treasury stock and its selling price is recorded as a reduction of the Retained Earnings account as a debit.
If there is no balance in the Additional Paid-in Capital from Treasury Stock account, the entire debit will reduce retained earnings. Assume that on October 9, La Cantina sells another shares of its treasury stock, but this time at? Cash is increased for the selling price,? The difference is recorded as a debit of? Notice that the balance in this account from the August 1 transaction was?
The transaction is recorded as:. Treasury stock transactions have no effect on the number of shares authorized or issued. Because shares held in treasury are not outstanding, each treasury stock transaction will impact the number of shares outstanding. A corporation may also purchase its own stock and retire it. Retired stock reduces the number of shares issued. When stock is repurchased for retirement, the stock must be removed from the accounts so that it is not reported on the balance sheet.
The balance sheet will appear as if the stock was never issued in the first place. Based on the partial balance sheet presented, answer the following questions:.
The difference between the market price and the par value when the stock was issued. Treasury stock. Figure Stock can be issued for all except which of the following? Figure Why would a company repurchase its own stock? To affect the market price, avoid takeover, and limit need for dividend payouts. Figure The following data was reported by Saturday Corporation:.
Figure A corporation issues 6, shares of? Prepare the journal entry to reflect this transaction. Figure When corporations issue stock in exchange for professional services, what account s should be debited and what account s should be credited? Figure A corporation issues 5, shares of? Figure Fortuna Company is authorized to issue 1,, shares of?
In its first year, the company has the following transactions:. Journalize the transactions and calculate how many shares of stock are outstanding at August 3.
Figure James Incorporated is authorized to issue 5,, shares of? In its second year of business, the company has the following transactions:. The company has the following transactions during the year:. Any amounts received in excess of the stated value per share represent a part of the paid-in capital of the corporation and the company credits them to Paid-In Capital in Excess of Stated Value. The legal capital of a corporation issuing no-par shares with a stated value is usually equal to the total stated value of the shares issued.
The entry to record this transaction is:. A corporation that issues no-par stock without a stated value credits the entire amount received to the capital stock account. If no stated value had been assigned, the entry would have been as follows:.
Common Stock, no par , To record issuance of 10, shares for cash. 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. For example, a company might have 1,, authorized shares. Authorized shares have not been issued to shareholders, and simply define the maximum number of shares the company can issue sell. As the issued shares must not exceed the authorized shares, it is normal to have the number of authorized shares set higher then the immediate requirement for shares to be issued.
A company can change its authorized share capital at a later stage, but this involves additional formalities and costs, so it is easier to start with a larger authorized share capital. The issued shares is the amount of authorized shares which the company has actually issued sold to shareholders in return for payment usually cash. So for example, a company might have 1,, authorized share capital, but might have only issued , shares to shareholders, it therefore has 1,, share remaining which is can issue at a later stage.
In order to raise funds from shareholders a company will issue shares at a price. For example, if the company wanted to raise 1. The total value of capital stock or share capital issued is then:. The , shares are issued at a price of 2. If the authorized number of shares is 1,,, it can still issue a further 1,, shares at a later date to raise additional cash.
Having received the cash it might be expected that the double entry bookkeeping journal would simply be as follows:.
Accounting convention requires that the amount of capital stock relating to the price above par value must be shown separately as a premium on stock, usually referred to as paid in capital in excess of par value.
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