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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Issuing Common Stock

Carmean Products Inc. sold 32,350 shares of common stock to stockholders at the time of its incorporation. Carmean received S42 per share for the stock.

Required:

  1. Assume that the stock has a $22 par value per share. Prepare the journal entry to record the sale and issue of the stock.
  2. Assume that the stock has a $8 stated value per share. Prepare the journal entry to record the sale and issue of the stock.
  3. Assume that the stock has no par value and no stated value. Prepare the journal entry to record the sale and issue of the stock.
  4. CONCEPTUAL CONNECTION How do the different par values affect total contributed capital and total stockholders’ equity?

To determine

(a)

Introduction:

A common stock is issued by the company to raise finance using equity. These are issued to the investors (who are regarded as stockholders or shareholders, once common stock is issued to them) with no obligation to pay the dividend periodically. Common stock is also referred to as common shares.

To record:

Journal entry for the issue of stock with $22 as par value.

Explanation

Given:

32,350 shares of common stock issued at $42 (par value $22).

When a company raises its finances by issuing common stock to stockholders, then the resulting amount is shown under Capital Stock section of Stockholders’ equity.

Journal Entry for issuance common stock

Date Particulars Debit ($) Credit ($)
Not
given
Cash Dr.
Common Stock
Additional Paid-in Capital (common stock)
1,358,700 711,700
647,000

Cash = No

To determine

(b)

Introduction:

A common stock is issued by the company to raise finance using equity. These are issued to the investors (who are regarded as stockholders or shareholders, once common stock is issued to them) with no obligation to pay dividend periodically. Common stock is also referred to as common shares.

To record:

Journal entry for the issue of stock with $8 as stated value.

To determine

(c)

Introduction:

A common stock is issued by the company to raise finance using equity. These are issued to the investors (who are regarded as stockholders or shareholders, once common stock is issued to them) with no obligation to pay dividend periodically. Common stock is also referred to as common shares.

The interest expense to be shown in Income Statement for year 2023.

To determine

(d)

Introduction:

A common stock is issued by the company to raise finance using equity. These are issued to the investors (who are regarded as stockholders or shareholders, once common stock is issued to them) with no obligation to pay dividend periodically. Common stock is also referred to as common shares.

To explain:

The effect of par value on capital contributed and total stockholders’ equity.

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