When forming a corporation, you select the number of shares your company is authorized to issue and list a par value for the stock. The par value is the minimum amount an investor can pay to own a share of stock in the corporation. While the market value of your stock can fluctuate, the par value is constant. Issuing stock at par value affects two balance sheet accounts: the cash account and the stockholder’s equity account. Entries for the transaction must be recorded separately to each account.
1. Multiply the number of shares you issue by the par value of the stock. The result is the total amount of paid-in capital you receive for issuing the stock.
2. Make a debit journal entry to your cash account in the amount you receive from the investor for the stock. The debit results in an increase to the cash account.
3. Create a memo for your journal entry for “Common Stock Issued” and credit the cash account for the par-value received. The credit is necessary to balance the cash account. The memo creates an audit trail on the financial statements.
4. Create an entry to the paid-in capital account for the stockholder’s equity statement in the amount received for the issuance. In the memo line, include the number of shares the company is authorized to issue, and the number of shares issued in the transaction.
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