At the end of fiscal year 2018, Hermin Legal Services and Tastey Doughnuts reported these adapted amounts on their balance sheets (all amounts in millions except for par value per share):
Assume each company issued its stock in a single transaction. Journalize each company's issuance of its stock, using its actual account titles. Explanations are not required. (Enter amounts in millions. Record debits first, then credits. Exclude explanations from any journal entries.)
Answer
Every corporation issues common stock, the basic form of capital stock. The common stockholders are the owners of the corporation. They stand to benefit the most if the corporation succeeds because they take the most risk by investing in common stock.
Stock may be par-value stock or no-par stock. Par value stock is stock with an arbitrary amount assigned to each share when it is originally authorized by the corporate charter. No-par stock does not have par value per share. Most companies set the par value of their common stock low to avoid legal difficulties later. Par value of preferred stock is sometimes higher. When a corporation sells par value common stock, the par value per share multiplied by the number of shares sold is credited to the Common Stock account. If the stock has no par value, the entire value of the cash or other assets received for the stock is credited to the Common Stock account.
Most corporations issue common stock for a price above par. Because the entity is dealing with its own stockholders, a sale of stock above par does not result in a gain, income, or profit to the corporation. Therefore, assuming a sale of common stock for a per share price in excess of the par value per share, a company will credit its Common Stock account for the par value, with any excess credited to the Additional Paid-in Capital account.
Let's begin wih Hermin Legal Services. Note that the company has issued stock at a price above par value because there is $17 comma 800 in the Additional Paid-in Capital account. Our entry, then, must increase the Cash account for the total cash received, which is the sum of the par value of the stock issued and the paid-in capital amount. The Common Stock account must also be increased for the total par value of the stock issued and the additional paid-in capital must be increased for the amount of paid-in capital. Go ahead and prepare the entry. (Enter amounts in millions. Record debits first, then credits. Exclude explanations from any journal entries.)
Next, let's review the data for Tastey Doughnuts. According to the balance sheet data, Tastey Doughnuts stock has no-par value. To record the issuance of no-par stock, the company debits the asset received and credits the Common Stock account for the cash value of the asset received. Since there is no par value, there will be no additional paid-in capital. Go ahead and journalize the Tastey Doughnuts common stock issuance. (Enter amounts in millions.)
Thanks
Assume each company issued its stock in a single transaction. Journalize each company's issuance of its stock, using its actual account titles. Explanations are not required. (Enter amounts in millions. Record debits first, then credits. Exclude explanations from any journal entries.)
Answer
Every corporation issues common stock, the basic form of capital stock. The common stockholders are the owners of the corporation. They stand to benefit the most if the corporation succeeds because they take the most risk by investing in common stock.
Stock may be par-value stock or no-par stock. Par value stock is stock with an arbitrary amount assigned to each share when it is originally authorized by the corporate charter. No-par stock does not have par value per share. Most companies set the par value of their common stock low to avoid legal difficulties later. Par value of preferred stock is sometimes higher. When a corporation sells par value common stock, the par value per share multiplied by the number of shares sold is credited to the Common Stock account. If the stock has no par value, the entire value of the cash or other assets received for the stock is credited to the Common Stock account.
Most corporations issue common stock for a price above par. Because the entity is dealing with its own stockholders, a sale of stock above par does not result in a gain, income, or profit to the corporation. Therefore, assuming a sale of common stock for a per share price in excess of the par value per share, a company will credit its Common Stock account for the par value, with any excess credited to the Additional Paid-in Capital account.
Let's begin wih Hermin Legal Services. Note that the company has issued stock at a price above par value because there is $17 comma 800 in the Additional Paid-in Capital account. Our entry, then, must increase the Cash account for the total cash received, which is the sum of the par value of the stock issued and the paid-in capital amount. The Common Stock account must also be increased for the total par value of the stock issued and the additional paid-in capital must be increased for the amount of paid-in capital. Go ahead and prepare the entry. (Enter amounts in millions. Record debits first, then credits. Exclude explanations from any journal entries.)
Next, let's review the data for Tastey Doughnuts. According to the balance sheet data, Tastey Doughnuts stock has no-par value. To record the issuance of no-par stock, the company debits the asset received and credits the Common Stock account for the cash value of the asset received. Since there is no par value, there will be no additional paid-in capital. Go ahead and journalize the Tastey Doughnuts common stock issuance. (Enter amounts in millions.)
Thanks
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