Issuing Common Stock Course Work

Published: 2021-06-22 00:45:32
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Category: Company, Investment, Banking

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Issuing Common Stock
A company may issue its’ common stock at par value, below the par value or above the par value. When a company issues common stock below the par value, the company will transfer an amount equivalent to the aggregate par value to the common stock account. The amount in excess of the aggregate par value of the common stock is then transferred to the Share premium account.
For Example:
Assume that Green Marketer Ltd is a public listed company. On 2nd June 2010, it issued 10,000 shares of its common stock with a par value of $5 to the public at $10 each fully payable on application. The common stock issue was oversubscribed due to the Company’s good reviews. They received applications for 20,000 shares. On 30th June 2010, they returned one half of the application fees to unsuccessful applicants and then proceeded to allot the rest to the successful applicants.
Journal entries to record these transactions will be as follows;
i. Dr Bank account (20,000 * 10). 200,000
Cr Share application account (20,000 * 10) 200,000
(To record total cash received on application)
ii. Dr Share application account (10,000 * 10) 100,000
Cr Bank account (10,000 * 10) 100,000
(To record cash refunded to unsuccessful applicant)
iii. Dr Share application account (10,000 * 10) 100,000
Cr Common Stock account (5,000 * 10) 50,000
Cr share premium account (5,000 * 10) 50,000
(To record transfer of application receipts to the common
Stock account and to recognize the share premium)
The balance sheet extract will appear as below
Green Marketer Ltd
Balance Sheet (Extract)
As at 30th June 2010
Assets
Bank 100,000
Financed by:
Common Stock 50,000
Share premium 50,000
References
Penne, A. (2010). Introduction to Accounting: An Integrated Approach (6, illustrated ed.). McGraw-Hill Higher Education.

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