Question

Gothic Architecture is a new chain of clothing stores specializing in the color black. Gothic issues 1,000 shares of its $1 par value common stock at $10 per share. Record the issuance of the stock. How would the entry differ if Gothic issued no-par value stock? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer:

There will be a $10,000.00 capital account  Journal entry and a subsequent credit of common stock journal entry about the no par value.

Explanation:

Funds from the sale of par value stock are divided between the common stock account and the paid-in capital account. For example Gothic Architecture issued a 1,000 shares of $1 par value at $10 par share means that it offered the stock for $1 par share but with the market price of $10 which depicts $10,000.00 will be realised as equity from the sales of the shares.

The only financial effect of a no par value issuance is that any equity funding generated by the sale of no par value stock is credited to the common stock account.  

There is a journal entry required for the transactions because the aforementioned entry notwithstanding, there should also be a corresponding Asset entry on the Balance Sheet of Gothic Architecture for both transactions.