ACCOUNTING FOR STOCK ISSUE
Let’s first review the rules of debits and credits by working with the accounting
equation (Assets = Liabilities + Stockholders’ Equity OR CAPITAL). Assets are
increased with debits and decreased with credits.
Liabilities are increased with credits and decreased with debits.
Stockholders’ Equity consists of several accounts:
Common Stock, Retained Earnings, and Revenues all increase Stockholders’ Equity
and are increased with credits. Expenses and Dividends are overall decreases to
Stockholders’ Equity and are increased with debits.
Account
Increase
Decrease
Common Stock
Cr
Dr
Retained Earnings
Cr
Dr
Revenues
Cr
Dr
Expenses
Dr
Cr
Dividends
Dr
Cr
Journal entry for applicants offer for shares issued at par:
Debit- Bank
Credit- Ordinary share applicant
Journal entry for company’s acceptance of applicants offer for shares issued at par:
Debit- Ordinary share applicant
Credit- Ordinary /preference share capital
Journal entry for applicants offer for shares issued at premium:
Debit- Bank
Credit- Ordinary/preference share applicant
Journal entry for company’s acceptance of applicants offer for shares issued at
premium:
Debit- Ordinary/preference share applicant (nominal value)
Credit- Ordinary/preference share capital
Debit: Ordinary share applicant (share premium)
Credit: share premium
Journal entry for oversubscription of shares:
Debit- Bank
Credit- Ordinary share applicant
Debit: Ordinary share applicant (refund) Credit: Bank
Debit- Ordinary share applicant (nominal value)
share capital
Credit- Ordinary/preference
Journal entry for issue of shares payable by installments:
Application:
Debit: Bank
Credit: Application and allotment account
Debit: Application and allotment account (nominal at installment
Credit: Share capital account
Refund of application:
Debit: Application and allotment (installment rate)
application
Credit: Bank-refund of
Allotment:
Debit: Bank (less excess application monies)
account
Credit: Application and allotment
1st call:
Debit: Bank (installment rate)
Credit: First call
Debit: First call
Credit: Share capital account
2nd call:
Debit: Bank (installment rate)
Credit: Second call
Debit: Second call
Credit: Share capital account
Question solution:
Shark School Supply Corporation was organized in 2011. It was authorized to issue
200,000 shares of no-par common stock with a states value of $5 per share, and
40,000 shares of $100 par value, 6% noncumulative preferred stock. On March 1,
the company issued 60,000 shares of its common stock for $15 per share and 8,000
shares of its preferred stock for $100 per share.
1. Record the issuance of the stock in T accounts
Notes:
 Issuance of shares with no par value is recorded by:
o Debit cash and credit common stock or preferred stock.
 When par value shares are issued exactly at par:
Cash is debited and common stock or preferred stock account is
credited.
When the issuance of stock is above par, the entry is:
o Debit cash account for the total cash received
o common stock or preferred stock is credited for the par value *
number shares issued
o additional paid-in capital account is credited for the excess of cash
received (over the par value * number of shares issued)
Issuance of shares below par, the entry is:
Debit cash for the actual amount received
Credit common stock or preferred stock is for the total par value
Debit discount on capital for the excess of total par value over cash received
o
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2. Prepare the stockholders equity section of Shark School Supply Corporations
balance sheet as it would appear immediately after the company issued the common
and preferred stock
Notes:
 Common stock, Preferred stock, additional paid‐in‐capital, retained earnings,
and treasury stock are all reported on the balance sheet in the stockholders'
equity section
 These items are listed and totaled to give total stockholder’s equity in the
balance sheet - stockholders equity section.
See sample below: