common stock on balance sheet

common stock on balance sheet

What Is Affected on a Balance Sheet if More Stocks Are Issued?

Share certificate issuance proceeds appear in two places on the balance sheet.

All corporations are authorized to issue stock to investors, whether the corporation is publicly traded or not. A stockholder is generally assigned a percentage of ownership in the company, based on the percentage of stock he owns. There is a difference between the number of shares a company is authorized to issue and the number of shares actually issued. When you issue stock to shareholders, you must adjust two accounts on your balance sheet to record the transaction.

The amount of stock you issue differs from the amount of stock your company is authorized to issue. When you establish a corporation, the number of shares your business is authorized to issue is listed on your Articles of Incorporation filed with the state where you transact business. When shares are actually issued, the remaining number of shares your company is authorized to issue decreases. Authorized shares may be reported on the balance sheet. However, reporting the authorized, but unissued, shares of stock serves more as a tool for keeping track of the number shares that can still be issued. Authorized shares have no monetary value until they're sold.

Many states require companies to list the par value, or stated value, of each share of stock the company is authorized to issue. Values are generally set when you establish a corporation. Although you set a per-share value, you may actually receive more than the par value when you issue stock to shareholders. When this occurs, you receive capital in excess of par value and must reflect the additional capital on your balance sheet accordingly.

The first balance sheet account affected by issuing stock is the cash account. The cash account increases by the amount your company receives for the purchased stock. If you receive capital in excess of par value, you must create two cash account entries to allocate the money received for each category. For example, if you issue a share of stock for $20 that has a par value of $1, make one entry labeled “Common Stock, Par-Value -$1” and a second entry labeled “Capital in Excess of Par-Value - $19” to your balance sheet cash account. The effect of the entries increases your account by $20 and the allocation of funds is recorded.

The effect on the Stockholder’s Equity account from the issuance of shares is also an increase. Money you receive from issuing stock increases the equity of the company’s stockholders. You must make entries similar to the cash account entries to the Stockholder’s Equity account on your balance sheet. Using the figures from the example above, the first entry is labeled “Common Stock – Par Value $1.” Enter the number of shares you issued with the transaction and the number of shares your company is still authorized to issue. These figures must reflect the decrease in the number of authorized shares. The par value collected from the issued stock must be recorded on the right side of the balance sheet. Next, create an entry that reads “Paid-in Capital in Excess of Par Value.” Record the excess capital you received on the right side of the balance sheet. Label a third balance sheet entry “Total Paid-in Capital” and list the sum of your two previous entries. The result equals the total amount you receive from the stock issuance, and the total increase to the Stockholder’s Equity account.

With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.

Cite this Article

[Loan Affect] | How Does a Loan Affect an Accounting Equation?

  • [Authorized Stock] | What Is the Difference Between Authorized Stock and Issued Stock?

  • [Common Stock Outstanding] | The Differences Between Common Stock Outstanding & Issued

  • [Company Issuing Additional Common Stock] | The Implications of a Company Issuing Additional Common Stock

    1. 1. Regulation of Investment Advisors
    2. 2. Regulation of Broker-Dealers and Securities
    3. 3. Remedies and Administrative Provisions
    4. 4. Client Communication and Compensation
    5. 5. Handling Client Funds
    1. 6. Quantitative Methods of Evaluating Businesses and Investments
    2. 7. Conflicts of Interest
    3. 8. Cash Equivalents and Fixed Income Securities
    4. 9. Stocks and Mutual Funds
    5. 10. Alternative Investments
    1. 11. Analyzing Your Client's Financial Profile
    2. 12. Portfolio Management
    3. 13. Taxation Issues
    4. 14. Retirement Plans
    5. 15. Basic Economic Concepts
    1. 16. Portfolio Risks and Returns
    2. 17. Trading Securities

    Working capital is not affected when a company buys securities with cash, since current assets include both cash and securities. A typical exam question will offer that scenario and then ask which balance sheet items are affected. Working capital will be an incorrect answer.

    • Commonand preferred stock - on the balance sheet, only the par value of both classes of stock is used, not the market value. (Par value is a dollar amount assigned to a security when first issued. For stocks, par value usually is a small amount that bears no relationship to its market price.) This par value is multiplied by the number of outstanding shares.

    You can expect only one or two questions on financial statements, such as:

    The correct answer is "b", since cash (a current asset) will decrease, this also decreases working capital. Furthermore, furniture is a fixed asset, not a current asset; and net worth is only affected by profit, loss or dividend payout.

    Recording Common Stock on a Balance Sheet

    A company’s balance sheet reflects its financial position for a specific period, usually over the course of a fiscal quarter or year. A balance sheet is divided into the three main accounts of assets, liabilities and stockholder’s equity. Common stock is recorded in the stockholder’s equity section of a balance sheet.

    A balance sheet displays a company’s assets and liabilities. The asset side on the right of the balance sheet displays what the company owns, such as property, equipment, investments, cash and accounts receivable. The left side of the balance sheet displays the company’s debts, which include accounts payable and notes payable The total assets on the right, must equal total liabilities and stockholder’s equity, on the left.

    In its corporate charter, a company may choose to assign either a par value or stated value for common stock. Both values are arbitrary and typically assigned for accounting purposes only. It is not the same as market value. Companies cannot issue common stock shares for less than its par or stated value. When common stock has an assigned par or stated value, multiply the number of shares outstanding by the par or stated value per share. This amount is recorded as common stock in the shareholder’s equity section of a balance sheet.

    Additional paid-in capital is also referred to as paid-in capital in excess of par on the balance sheet. The additional paid-in capital is the amount of cash received from the sale of stock shares in excess of the par or stated value of the shares. For example, assume a company issues 100 shares with a stated value of $10 per share, and investors purchase all 100 shares at $15 per share. The company’s additional paid-in capital is $5 per share multiplied by 100 shares. The company records $500 in additional paid in capital in the stockholder’s equity section of its balance sheet.

    As an example, assume a company issues 1,000 common shares with a stated value of $5 per share, and investors purchase all 1,000 shares for $15 per share. The total value of outstanding shares is $15,000. The company records common shares for $5,000 (1,000 shares outstanding x $5 stated value per share) in the shareholder’s equity section on their balance sheet. Each investor paid $10 per share in excess of the stated value, and $10 in excess of par multiplied by 1,000 shares outstanding equals $10,000. The $10,000 additional paid-in capital and the $5,000 stated value added together, equals the total value of shares outstanding of $15,000.

    Effect of Issuing Common Stock on the Balance Sheet

    Effect of issuing common stock on the balance sheet

    Newly formed Electronics Services Corporation has 100,000 shares of $10 par common stock authorized. On March 1, 2014, Electronics Services issued 20,000 shares of the stock for $12 per share. On May 2 the company issued an additional 30,000 shares for $15 per share. Electronics Services was not affected by other events during 2014.

    a) Record the transactions in a horizontal statements model like the following one. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). Use NA to indicate that an element was not affected by the event.

    b) Determine the amount Electronics Services would report for common stock on the December 31,2014 balance sheet.

    c) Determine the amount Electronic Services would report for paid-in capital in excess of par

    d) What is the total amount of capital contributed by the owners?

    e) What amount of total assets would Electronics Services report on the December 31, 2014 balance sheet?

    Recording and reporting common and preferred stock transactions

    Goldman Inc. was organized on June 1, 2014. It was authorized to issue 500,000 shares of $10 par common stock and 100,000 shares of 4 percent cumulative class A preferred stock. The class A stock had a stated value of $50 per share. The following stock transactions pertain to Goldman Inc.:

    1. Issued 40,000 shares of common stock for $16 per share.

    2. Issued 20,000 shares of the class A preferred stock for $52 per share.

    3. Issued 60,000 shares of common stock for $20 per share.

    Prepare the stockholders' equity section of the balance sheet immediately fter these transactions have been recognized.

    Compute the Cash received at par value and Paid-in Excess of par value for each date. Par value is $10. Only compute the amounts using the issued shares, not the authorized shares.

    For the shares issued on March 1, 2014:

    Com Stk = 20,000 X $10 = $200,000

    Paid-in excess = 20,000 X ($12 - $10) = $40,000

    For the shares issued on May 2, 2014:

    Com Stk = 30,000 X .

    This solution contains step-by-step computations for each problem is shown in 2 pdf files. All required answers are given. An Excel file showing computations for the table for question #1, and stockholders' equity section of the balance sheet for question #2 are given.

    Definition of common-size balance sheet

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    common-size analysis The representing of balance sheet items as percentages of assets and of income

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    How much profit a company made on each share of common stock this year.

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    Financial statement that uses the market value of all assets and liabilities.

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