3. Issuing par value stock at a discount— Discount occurs when
a corporation sells its stock for less than its par value
(prohibited by most states).
a. Debit Cash (# shares issued x market price).
b. Credit Common Stock (# shares issued x par value).
c. Debit Discount on Common Stock, a contra to the
common stock account (for the amount of the discount).
d. When allowed, the purchasers usually become
contingently liable to the corporation’s creditors for the
amount of the discount.
B. Issuing No Par Value Stock
When no-par stock is not assigned a stated value, the entire
amount received becomes legal capital and is recorded as
C. Issuing Stated Value Stock
Stated value becomes legal capital and is credited to a no-par stock
account. If stock is issued at an amount in excess of stated value,
this excess is credited to Paid-In Capital in Excess of Stated Value,
D. Issuing Stock for Noncash Assets
1. Issuing par value stock for other assets
a. Record the transaction at the market value of the noncash
asset as of the date of the transaction.
b. Record par value or stated value of stock issued in stock
c. Record the amount that market value exceeds par value or
stated value of stock in the Paid-In Capital in Excess
2. Issuing par value stock for organizational costs—stock is
issued in exchange for services (from promoters, lawyers,
accountants) in organizing the corporation
a. Record the transaction at the market value of the services
received debiting this amount to Organization Expense.
b. Record par or stated value of shares issued in stock
account and any value received above this in Paid-In
Capital in Excess account.
A. Cash Dividends—decision to pay these dividends rest with board
of directors and is based on evaluating the amounts of retained
earning and cash as well as many other factors.
1. Accounting for cash dividends involves three important dates.
a. Date of Declaration—date the directors vote to pay a
dividend (legal liability created).