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Chapter 15: Question 7Q (page 810)

Describe the accounting for the issuance for cash of no-par value common stock at a price in excess of the stated value of the common stock.

Short Answer

Expert verified

The issuance of no-par value stocks is recorded as debiting the cash account and crediting the equity account.

Step by step solution

01

Meaning of No-Par Value

Shares with no par value include a provision to have no redeemable value. The price of such a stock depends on the investor's willingness to pay for the stock.

02

Accounting for the issuance for cash of no-par value

The following is how the issuing of no-par value common stock for cash at a price higher than the stated value of the common stock is accounted for:

  1. The proceeds from the issuing of common stock are debited to increase the cash account.
  2. The stated value of the common stock is credited to Common Stock.
  3. Capital Paid-in in Excess of the Stated Value: The excess of the proceeds from issuing common stock above its declared value is credited to Common Stock.

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Most popular questions from this chapter

List possible sources of additional paid-in capital.

What factors influence the dividend policy of a company?

1. Which of the following does not represent a pair of GAAP/ IFRS-comparable terms?

(a) Additional paid-in capital/Share premium.

(b) Treasury stock/Repurchase reserve.

(c) Common stock/Share capital—ordinary.

(d) Preferred stock/Preference shares.

What are the different bases for stock valuation when assets other than cash are received for issued shares of stock?

(Issuance of Stock for Land) Martin Corporation is planning to issue 3,000 shares of its own $10 par value common stock for two acres of land to be used as a building site.

Instructions

  1. What general rule should be applied to determine the amount at which the land should be recorded?
  2. Under what circumstances should this transaction be recorded at the fair value of the land?
  3. Under what circumstances should this transaction be recorded at the fair value of the stock issued?
  4. Assume Martin intentionally records this transaction at an amount greater than the fair value of the land and the stock. Discuss this situation.
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