Journalizing the Transaction

Oct 13, 2025 by talynt.org 18 views

**Understanding Alma Corp.'s Stock Issuance: A Comprehensive Guide**

What is Common Stock?

Common stock is a type of equity security that represents ownership in a company. It is the most basic form of stock and gives shareholders the right to vote on company matters and receive dividends. Common stock has a par value, which is the minimum amount of money that the company must receive when issuing the stock.

What is Paid-In Capital in Excess of Stated Value?

Paid-in capital in excess of stated value is an account that represents the amount of money received from the sale of stock above its par value. When a company issues stock for more than its par value, the excess amount is recorded in this account.

Alma Corp.'s Stock Issuance: A Closer Look

Alma Corp. issues 2,160 shares of $8 par common stock at $18 per share. This means that the company is selling each share of stock for $18, which is $10 more than its par value of $8.

Journalizing the Transaction

When journalizing the transaction, the company must record the correct amounts in the correct accounts. Let's break down the journal entry:

Common Stock: This account represents the par value of the stock. Since the company issued 2,160 shares at $8 per share, the total amount recorded in Common Stock would be $17,280 (2,160 x $8).
Paid-In Capital in Excess of Stated Value: This account represents the excess amount received from the sale of stock above its par value. Since the company sold each share for $18, which is $10 more than its par value, the total amount recorded in Paid-In Capital in Excess of Stated Value would be $21,600 (2,160 x $10).

Q&A Session

Q: Why is the amount recorded in Common Stock $17,280 and not $38,880?

A: The amount recorded in Common Stock is $17,280 because it represents the par value of the stock, which is $8 per share. The total amount of $38,880 would be the total amount received from the sale of stock, but it includes the excess amount above the par value.

Q: Why is the amount recorded in Paid-In Capital in Excess of Stated Value $21,600 and not $0?

A: The amount recorded in Paid-In Capital in Excess of Stated Value is $21,600 because it represents the excess amount received from the sale of stock above its par value. Since the company sold each share for $18, which is $10 more than its par value, the total amount recorded in this account would be $21,600 (2,160 x $10).

Q: What is the purpose of recording the excess amount in Paid-In Capital in Excess of Stated Value?

A: The purpose of recording the excess amount in Paid-In Capital in Excess of Stated Value is to reflect the true value of the stock issued by the company. This account helps to provide a more accurate picture of the company's financial position and performance.

Q: How does the issuance of stock affect the company's financial statements?

A: The issuance of stock can affect the company's financial statements in several ways. It can increase the company's equity, which can lead to an increase in the company's assets and a decrease in its liabilities. It can also affect the company's cash flow, as the company may receive cash from the sale of stock.

Conclusion

In conclusion, the issuance of stock by Alma Corp. is a complex transaction that requires careful consideration of the accounting principles involved. By understanding the concepts of common stock and paid-in capital in excess of stated value, we can see that the correct journal entry for the transaction is to record $17,280 in Common Stock and $21,600 in Paid-In Capital in Excess of Stated Value. This article has provided a comprehensive guide to understanding Alma Corp.'s stock issuance and has answered several questions related to the topic.

Additional Resources

For further reading on this topic, we recommend the following resources:

Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 505-20, Equity—Stockholders’ Equity and Partnerships
American Institute of Certified Public Accountants (AICPA) Accounting Research Bulletins (ARBs) 45 and 51
Various online resources and textbooks on financial accounting and auditing.