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Issuing Par Value Stock above Par Value

Brian Krogol
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Alright now let's see an example where the selling price is greater than the par value. Now you're not really going to see an example where the selling price is less than par value. I don't think I've ever seen that before. So we're gonna focus here on this is the most common case where we're gonna have a selling price greater than the par value. Well this journal entry is going to include a pick right? Because the par value is gonna go to the The common stock account and everything extra goes into this additional paid in capital account. Okay? So let's check it out. The apartment depot issued 50 excuse me, 500,000 shares of 50 cent par value. Common stock for $2 per share. So notice this time they gave you a per share selling price and they can do it either way they can give you the total amount that you received or they can give you a per share selling price. Okay. And you should be comfortable uh converting between the total amount receive and the per share selling per share amount. Okay And that's really simple. You just have to divide by the number of shares, right, divide by the number of shares or multiply by the number of shares to get to the total cash received. Okay. So remember in this journal entry what we're always going to see in these journal entries we're gonna receive some amount of cash, right? That's gonna be a debit in our journal entry and we sold common stock. So we're going to credit common stock. But remember now what we do is we only put the par value into common stock and everything additional goes into a pick. Right? So in any time that you're going to set up a journal entry for selling common stock, this is how you should set it up debit, cash, credit, Common stock, credit a pick. Now if you sold it at par value, well, guess what? A pick would just be zero. So we would have no a pick and it would still balance right? Cash and common stock would have all the value. But what you're generally going to see is an amount in a pick. Okay. So let's go ahead and figure out what our cash amount is, what our common stock amount is and then a pick is just everything extra. Okay, so that's how you go about solving these. You want to find the total cash received the total amount of par value that goes to the common stock account and then everything extra is a pick. All right? So let's start with the cash amount. So cash is going to be the number of shares we sold times the price we sold them at. Right? We sold 500,000 shares and each share sold for $2. So what do we have 500,000 shares times the $2 selling price. Well, that means we received $1 million. Right? That should make sense. We sold 500,000 shares for $2. So we know the cash we received is gonna be one million here. So that's our debit to cash. One million. Now, what about the common stock account that's only gonna get the par value. So how much how much is going to go into the common stock account? Well, we sold 500,000 shares and each one has a 50 cent par value. So we have to do 500,000 times the 50 cent par value. So common stock That's gonna equal the 500,000 shares. We sold times the par value of 50 cents. And that comes out to 250,000, 250,000. That's what goes into the part of the common stock account is the par value. So here's our credit 250,000 to common stock and kind of squish squish them a little bit for space. So, common stock credit 250,000. So obviously, you can tell with some simple math what the a pick is gonna be. Right, we just have to plug it in. And that's always gonna be the total cash received. So cash received minus the common stock account, right? Whatever went into the common stock which was the par value. Right? So cash received of a million -250000 that went into common stock. That leaves us with 750,000 that goes into a pick. Right? And that's what's gonna balance out this equation. So, additional paid in capital is 750,000. All right. So this is this is always how we're gonna do it. We're only gonna store the par value in the common stock account and then everything extra goes to additional paid in capital. But notice these are both equity accounts. Right? So, our equity still went up by a million. Notice our cash, right? We received cash of one million. So our assets went up by one million. And our equity here. Well, the common stock account, I'm gonna put CS for common stock. That one got 250,000 and that was an increase to that account. And then a pick got 750,000, the amount above the par value. And that went up as well. So, the assets still equal liabilities plus equity. Right? The increase in assets equals the increase in equity. Same thing. We're just splitting up that value into the common stock account and a pick account. All right. Don't get too caught up with why we do it. Just joe just do it this way for now. Okay, in higher level courses, you'll start dealing with issues with Apec and things like that. But you don't need to get into it now. It's a very simple calculation when you just do it because you need to do it. All right. So, our cash went up by a million. Our equity went up by a million as well. Cool, let's go ahead and move on to the next video.