Journal Entry for Common Stock Issuance

Oct 13, 2025 by talynt.org 115 views

Introduction

As a publicly traded company, Hadden Corporation has two classes of stock: Common and Preferred. The Common stock has a par value of $\$2$ per share, while the Preferred stock has a par value of $\$7$ per share. In this article, we will focus on the issuance of 10,000 shares of common stock for $\$15$ per share. We will analyze the journal entries required to record this transaction and provide a comprehensive understanding of the accounting principles involved.

Journal Entry for Common Stock Issuance

When Hadden Corporation issues 10,000 shares of common stock for $\$15$ per share, it receives $\$150,000$ in cash. To record this transaction, we need to debit the cash account and credit the common stock account. The journal entry will be as follows:

Journal Entry

Debit	Account	Debit Amount
1	Cash	$\$150,000$
2	Common Stock	$\$20,000$
3	Additional Paid-in Capital	$\$130,000$

Explanation

Debit the cash account for $\$150,000$ to record the receipt of cash from the sale of common stock.
Credit the common stock account for $\$20,000$ to record the issuance of 10,000 shares of common stock with a par value of $\$2$ per share.
Credit the additional paid-in capital account for $\$130,000$ to record the excess amount received over the par value of the common stock.

Understanding the Accounting Principles

The issuance of common stock for cash is a common transaction in business. When a company issues stock for cash, it receives the cash and records the transaction in the journal. The journal entry involves debiting the cash account and crediting the common stock account and additional paid-in capital account.

Key Concepts

Par Value: The par value of common stock is the minimum amount that must be received for each share issued. In this case, the par value of common stock is $\$2$ per share.
Additional Paid-in Capital: This account represents the excess amount received over the par value of the common stock. In this case, the additional paid-in capital account is credited for $\$130,000$ .
Common Stock: This account represents the total amount of common stock issued by the company. In this case, the common stock account is credited for $\$20,000$ .

Conclusion

In conclusion, the issuance of 10,000 shares of common stock for $\$15$ per share by Hadden Corporation requires a journal entry that debits the cash account and credits the common stock account and additional paid-in capital account. This transaction is a common occurrence in business and requires a thorough understanding of the accounting principles involved.

References

Accounting Standards Codification (ASC): This is the primary source of accounting standards in the United States. It provides guidance on accounting principles and procedures.
Financial Accounting Standards Board (FASB): This is the organization responsible for setting accounting standards in the United States. It issues accounting standards and interpretations that are followed by companies.

Future Developments

In the future, companies may need to issue stock for other purposes, such as to raise capital or to reward employees. The accounting principles involved in these transactions will be similar to those discussed in this article.

Common Stock Issuance: A Real-World Example

Suppose Hadden Corporation issues 10,000 shares of common stock for $\$15$ per share to raise capital for a new project. The journal entry will be the same as discussed earlier:

Journal Entry

Debit	Account	Debit Amount
1	Cash	$\$150,000$
2	Common Stock	$\$20,000$
3	Additional Paid-in Capital	$\$130,000$

In this example, the company issues stock to raise capital for a new project. The journal entry is the same as discussed earlier, with the cash account debited and the common stock account and additional paid-in capital account credited.

Preferred Stock Issuance: A Comparison

Preferred stock has a higher par value than common stock. Suppose Hadden Corporation issues 10,000 shares of preferred stock for $\$15$ per share. The journal entry will be as follows:

Journal Entry

Debit	Account	Debit Amount
1	Cash	$\$150,000$
2	Preferred Stock	$\$70,000$
3	Additional Paid-in Capital	$\$80,000$

In this example, the company issues preferred stock with a higher par value than common stock. The journal entry is similar to that of common stock, with the cash account debited and the preferred stock account and additional paid-in capital account credited.

Conclusion

Introduction

In our previous article, we discussed the issuance of common stock by Hadden Corporation and the journal entry required to record this transaction. In this article, we will provide a comprehensive Q&A guide to help you understand the accounting principles involved in stock issuance.

Q&A Guide

Q1: What is the par value of common stock?

A1: The par value of common stock is the minimum amount that must be received for each share issued. In this case, the par value of common stock is $\$2$ per share.

Q2: What is the difference between common stock and preferred stock?

A2: Common stock and preferred stock are two types of stock issued by a company. Common stock has a lower par value than preferred stock and does not have any preference in dividends or assets. Preferred stock has a higher par value than common stock and has a preference in dividends or assets.

Q3: What is the journal entry for issuing common stock for cash?

A3: The journal entry for issuing common stock for cash involves debiting the cash account and crediting the common stock account and additional paid-in capital account.

Q4: What is the purpose of the additional paid-in capital account?

A4: The additional paid-in capital account represents the excess amount received over the par value of the common stock. It is credited when the company issues stock for cash and the amount received is more than the par value of the stock.

Q5: What is the difference between the par value and the issue price of common stock?

A5: The par value of common stock is the minimum amount that must be received for each share issued, while the issue price is the amount at which the stock is issued. The issue price may be higher or lower than the par value.

Q6: How do you record the issuance of preferred stock for cash?

A6: The journal entry for issuing preferred stock for cash involves debiting the cash account and crediting the preferred stock account and additional paid-in capital account.

Q7: What is the purpose of the preferred stock account?

A7: The preferred stock account represents the total amount of preferred stock issued by the company. It is credited when the company issues preferred stock for cash.

Q8: Can a company issue stock for other purposes, such as to reward employees?

A8: Yes, a company can issue stock for other purposes, such as to reward employees. The accounting principles involved in these transactions will be similar to those discussed in this article.

Q9: How do you record the issuance of stock for other purposes, such as to reward employees?

A9: The journal entry for issuing stock for other purposes, such as to reward employees, involves debiting the stock account and crediting the compensation expense account.

Q10: What is the difference between the issuance of stock for cash and the issuance of stock for other purposes?

A10: The issuance of stock for cash involves debiting the cash account and crediting the stock account and additional paid-in capital account, while the issuance of stock for other purposes involves debiting the stock account and crediting the compensation expense account.

Conclusion

In conclusion, the issuance of common stock for cash is a common transaction in business. The journal entry involves debiting the cash account and crediting the common stock account and additional paid-in capital account. The accounting principles involved in this transaction are similar to those discussed in this article. We hope this Q&A guide has helped you understand the accounting principles involved in stock issuance.

References

Accounting Standards Codification (ASC): This is the primary source of accounting standards in the United States. It provides guidance on accounting principles and procedures.
Financial Accounting Standards Board (FASB): This is the organization responsible for setting accounting standards in the United States. It issues accounting standards and interpretations that are followed by companies.

Future Developments

In the future, companies may need to issue stock for other purposes, such as to reward employees. The accounting principles involved in these transactions will be similar to those discussed in this article.

Common Stock Issuance: A Real-World Example

Suppose Hadden Corporation issues 10,000 shares of common stock for $\$15$ per share to reward employees. The journal entry will be as follows:

Journal Entry

Debit	Account	Debit Amount
1	Stock	$\$150,000$
2	Compensation Expense	$\$150,000$

In this example, the company issues stock to reward employees. The journal entry is different from that of common stock issued for cash, with the stock account debited and the compensation expense account credited.

Preferred Stock Issuance: A Comparison

Preferred stock has a higher par value than common stock. Suppose Hadden Corporation issues 10,000 shares of preferred stock for $\$15$ per share. The journal entry will be as follows:

Journal Entry

Debit	Account	Debit Amount
1	Stock	$\$150,000$
2	Compensation Expense	$\$150,000$

In this example, the company issues preferred stock with a higher par value than common stock. The journal entry is similar to that of common stock, with the stock account debited and the compensation expense account credited.