Question

Flint Corporation issued 700 shares of no-par common stock for $7,800. Prepare Flint’s journal entry if (a) the stock has no stated value, and (b) the stock has a stated value of $2 per share

Answer 1

Answer:Flint corporation journal $

Date

1. Bank account Dr 7800

Common stock Or. 7800

Narration. Issuance of 700 ordinary stock for $7800 .

2. Bank account Dr 7800

Common stock Cr. 1400

Share premium. 6400

Narration. Issuance of 700 ordinary at $7800 at a premium.

Explanation:

Shares can be issued at par, premium or discount. When it's issued at it's nominal value it's said to be issued at par, when it's issued above it's nominal value it's said to be issued at a premium and when it's issued below par it's said to issued at a discount.

Answer 2

Answer:

A. Flint’s journal entry if the stock has no stated value

Dr Bank.....................................7,800

Cr     Common Stock...................7,800

To record the issuance of 700 shares of stock.

B. Flint’s journal entry if the stock has a stated value of $2 per share

Dr Bank................................................................................................7,800

Cr     Common Stock..(700 shares @ $2 par per share...................1,400

Cr     Paid-In Capital in Excess of Par Value.......................................6,400

To record the issuance of 700 shares of stock @ $2 par per share.

Explanation:

In scenario a, where there is no stated par value, there is no way to distinguish between share capital and share premium, hence everything is recorded under common stock but in scenario b, with par value stated, the excess amounts have to be recorded separately  as amount received in excess of par value.