Blue Corporation issued 660 shares of no-par common stock for $8,600. Prepare Blue's journal entry if (a) the stock has no stated value, and (b) the stock has a stated value of $4 per share

Answer and Explanation:

Journal entries Debit Credit

(a) Cash $8,600

Common Stock $8,600

Issuance of 660 shares of no-par common stock

(b) Cash $8,600

Common Stock (W1) $2,640

Paid in Capital in excess of par (W2) $5,960

Issuance of 660 shares at a stated value of $4 per share

Working:

(W1) Common stock = Number of shares issued x Stated value per share

= 660 x $4

= $2,640

(W2) Paid in Capital in excess of par = Cash - Common Stock

= $8,600 - $2,640

= $5,960

(a) Dr Cash $8, 600

Cr common stock - no par value $8, 600

Shares issued at no par value

(b) Dr Cash $8, 600

Cr Common stock $2, 640

Cr Additional paid-in capital $5, 960

Shares issued at no par value

Explanation:

No-Par Value Stock:

No-par value stock is shares that have been issued without a par value.

Par value is the face value of a bond or share. It is the per share amount that will appear on some stock certificate. In the case of common stock (shares), the par value is usually a very small amount such as $0.10. this par value has no connection with the market value of the share.

The reason why shares have par values is because these par values are stated in an organization's corporate charter; and shares cannot be issued at a value that is less than the par value. The par value or any share or bond is not the face value of the share or bond.

(a) If the share is carried in the organization's accounts at its issue price i. e. the shares have no stated value, then this is how the journal entry is recorded:

Dr Cash $8, 600

Cr common stock - no par value $8, 600

Shares issued at no par value

(b) If the share is carried in the organization's accounts at stated value, this is how the journal entry is recorded:

Dr Cash $8, 600

Cr Common stock $2, 640

Cr Additional paid-in capital $5, 960

Shares issued at no par value

This is how we arrived at the answer for (b):

660 shares were issued at $4 per share, therefore 660 x $4 = $2, 640

The balance of $5, 960 * is recorded as additional paid-in capital.

*$8, 600 - $2, 640 = $5, 960