accounting for common stock?

Question

what accounting entries should be made on the firm,s balance sheet for the following cases.
a) a firm sells 10,000 shares of $1 par common stock at $13 per share.
b)a firm sells 20,000 shares of $2 par common stock and receives $100,000.
c) a firm sells 200,000 shares of no par common stock for $8million.
d) a firm sells 14,000 shares of common stock for the par value of $5 per share

Answer 1

a) a firm sells 10,000 shares of $1 par common stock at $13 per share.
Dr Cash 130,000
Cr Share capital 10,000
Cr Share premium (aka additional paid in capital) 120,000

b)a firm sells 20,000 shares of $2 par common stock and receives $100,000.
Dr Cash 100,000
Cr Share capital 40,000
Cr Share premium 60,000

c) a firm sells 200,000 shares of no par common stock for $8million.
Dr Cash 8m
Cr Share capital 8m

d) a firm sells 14,000 shares of common stock for the par value of $5 per share
Dr Cash 70,000
Cr Share capital 70,000

If a co. has a par value, the amount rec'd at par value goes to share capital. Anything above that goes to share premium. Some companies have done away with the concept of par value in which case anything received for allotment of shares goes to share capital. All these a/cs (cash, share capital, share premium a/c) are balance-sheet items.

Answer 2

emis correct. However answer (c) assumes the shares have no cost associated with them. American firms often issue (well more than in the UK, when the are often issued by non profit organisations), however the often have a value as they were bought at a premium. That is they where issued at no par but sold say at £1) In this case the opposite of the cash entry should be the share premium account. Same for (d), and rember there will be costs involved which will reduce proceeds,

Answer 3

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Answer 4

Did you fail to turn up for the first class ??

1) It's a BALANCE sheet
2) One side will have Assets, the other Liabilities
3) Assets include money in the Bank

Answer 5

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