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.
|Common stock, par value||20,000|
|Additional paid-in capital||260,000|
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.”
Entity B repurchased 10,000 shares of its own common stock at $7 per share. The common stock has $1 par value.
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.