When additional capital is invested in the form of new stock, the journal entry will depend on whether the new stock is issued at par value, at a premium, or at a discount. Below are the journal entries for each scenario:
- Issuance of New Stock at Par Value: When new stock is issued at its par value, the journal entry is straightforward. The par value is the nominal or face value of each share of stock, as determined by the company’s charter or articles of incorporation.
Assuming the company issues 1,000 shares of common stock at a par value of $1 per share, and all shares are fully subscribed for in cash, the journal entry would be:
Debit: Cash (Number of shares issued × Par value per share) Credit: Common Stock (Number of shares issued × Par value per share)
Journal Entry: Debit: Cash $1,000 Credit: Common Stock $1,000
- Issuance of New Stock at a Premium: When new stock is issued at a price higher than its par value, the excess amount received over the par value is considered a premium. This premium is credited to the additional paid-in capital account.
Assuming the company issues 1,000 shares of common stock at $2 per share, with a par value of $1 per share, and all shares are fully subscribed for in cash, the journal entry would be:
Debit: Cash (Number of shares issued × Issue price per share) Credit: Common Stock (Number of shares issued × Par value per share) Credit: Additional Paid-in Capital (Number of shares issued × Premium per share)
Journal Entry: Debit: Cash $2,000 Credit: Common Stock $1,000 Credit: Additional Paid-in Capital $1,000
- Issuance of New Stock at a Discount: When new stock is issued at a price lower than its par value, the difference between the issue price and the par value is considered a discount. This discount is debited to the additional paid-in capital account.
Assuming the company issues 1,000 shares of common stock at $0.80 per share, with a par value of $1 per share, and all shares are fully subscribed for in cash, the journal entry would be:
Debit: Cash (Number of shares issued × Issue price per share) Debit: Additional Paid-in Capital (Number of shares issued × Discount per share) Credit: Common Stock (Number of shares issued × Par value per share)
Journal Entry: Debit: Cash $800 Debit: Additional Paid-in Capital $200 Credit: Common Stock $1,000
It’s important to note that the journal entries may vary depending on the specific circumstances of the stock issuance and any other associated costs or transactions. Additionally, companies may have different classes of stock, each with its own par value and issuance terms, which could lead to more complex journal entries.
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