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Financial Accounting

Learn the toughest concepts covered in your Financial Accounting class with step-by-step video tutorials and practice problems.

12. Stockholders' Equity

Issuing No Par Value Stock


Issuing No Par Value Stock

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All right now let's talk about the special case where we're gonna issue common stock that has no par value. So sometimes what we're gonna see is that there's gonna be common stock. And they're not gonna say any par value amount, it's possible that companies will sell stock that have no par value. Okay And in those cases the journal entry actually gets easier. We're not gonna use the additional paid in capital account. So we're still gonna have a lot of the same terminology terminology here. We're still selling um issuing shares of these common stock and we're gonna have the selling price right just like before and this was the cash that we're gonna receive. We're gonna receive some amount of cash when we sell when we issue these shares and sell them to the public And then before we were dealing with this par value. Remember it said something like we've issued 50,000 shares of 50 cent par value common stock. Well in this case it's not going to say that 50 cent par value. It'll just say we issued 50,000 shares of common stock for this price, right? Whatever it might be. So we're not gonna have this par value. And remember when we talked about par value, it was that these common stock usually had some kind of low par value low par value, usually under $1. And this used to make more sense back in the day but in recent years par value doesn't take as much of a big deal here when we deal with common stock. Um So what we're gonna see is we're not going to deal with the additional paid in capital account. When we have no par value, everything is just gonna go into the common stock account. So everything that we sell in cash goes into the common stock account. Um And we don't deal with additional paid in capital. Remember the additional paid in capital was the amount above the par value? Well, since we don't have a par value, Well, everything is just going to go into the common stock account and we're not gonna split it up between these two accounts. Okay, so additional paid in capital, that's what we're calling. A pick will write it in here. So you don't forget. And let's just dive right into the example here. So notice in this first one when common stock has no par, all of the proceeds will be included In the common stock account. Okay. This is kind of how we were doing this before when we were first doing equity entries before we actually studied stockholders equity. Well this is exactly what it looked like. Everything was just going into common stock and we weren't dealing with an additional paid in capital account. So let's check it out. The apartment depot issued. 500,000 shares of no par common stock for $250,000. Well, since we don't have a par account and we're not gonna put some in common stock, some in a pick. This becomes really easy. Well, we received cash of $250,000. Give some space there and all of that goes into the common stock account. Okay. This is a special case when we have no power value that everything just goes into the common stock account. Okay. Um Remember everything above the par value would go into an A pick account if we had a par value. So we don't see that here. Now notice there's two ways they can give you this information, they can tell you the total selling price, right? The total cash received. Or they could just tell you a per share amount like they do in the next problem. Right? Um so check this one out. Well actually let let me finish this up here. I want just like before right we received cash of 250,000. So that increased our assets and our equity from selling common stock went up 250,000. Just like we were used to very simple balancing of the equation. So let's check out the second example here where it's very similar. The apartment depot issued 500,000 shares of no par value common stock. And notice they don't even have to say no par value. They could just say 500 shares of common stock. And you have to assume there's no par value. If they don't tell you what it is, there's no way for you to know. So you would treat it like this 500,000 shares for $2 per share if they don't give you a par value. Well everything goes to the common stock account. So what is everything notice in this case they gave us a per share amount, right? So we need to find the total amount that we raised. So how much cash did we actually receive? What was the 500,000 shares? Times $2 per share. That means there was a million dollars that we received in cash for issuing these shares. So that's going to be the cash in this entry and that would be the million. That's our debit. And our credit is still just common stock, right? Since there's no par value, we don't split it up between common stock and a pick. It's as easy as that. Right? So a lot of times teachers might just keep it simple and just do it like this and you don't have to deal with the A pick account. Okay, so this is how you would do these entries if you were not given a par value. Alright. And that's about it for this. Overall, it's very simple concept. Why don't we go ahead and move on to the next video