Common stock



Q44. Common stock
Entity A issued 20,000 shares of common stock at $14 per share. The par value of common stock is $1 per share.
Prepare a journal entry to record this transaction.

A44. Issue price over the par value portion is recorded in the additional paid-in capital account.

  Debit Credit
Cash 280,000  
     Common stock, par value   20,000
     Additional paid-in capital   260,000

[Note]
1. Increase in common stock (equity): credit
2. Increase in additional paid-in capital (equity): credit
3. Common stock, par value = 20,000 shares x $1 = $20,000
4. Additional paid-in capital = $280,000 – $20,000 = $260,000
5.” Paid-in capital in excess of par value” can be used in the place of “Additional paid-in capital.”

[Exercise]
Entity B repurchased 10,000 shares of its own common stock at $7 per share. The common stock has $1 par value.

  Debit Credit
Treasury stock 70,000  
     Cash   70,000

[Note]
1. Increase in treasury stock (contra-equity): debit
2. Treasury stock = 10,000 shares x $7 = $70,000
3. When an entity purchases its own stock, it is recorded as an increase in treasury stock.
4. Treasury stock is a contra-equity account that is subtracted from stockholders’ equity.

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