Stock Issuance Flashcards
Types of questions on the CPA Exam:
Record the issuance of stock
- Issued for cash (par or no par)
- Stock issue costs
- Issued for nonmonetary consideration
- Issued on Credit- Stock Subscriptions
How many different APIC accounts can you have?
APIC- Common
APIC- Preferred
APIC- Treasury
What if there is no par value on the stock?
There will be no APIC account. It will all go to common stock for the price that was paid.
If they give you stated value, use that as par value
What are stock issuance costs?
Costs associated with registering and issuing the securities in the market (underwriter fees, accounting fees, legal fees, SEC registration fees)
How do you handle stock issuance costs
Not expense
Reduce the proceeds from issuance
Example: Assume 2,000 shares of $3 par common stock are issued for $12 per share and incurs $1000 of stock issuance costs.
DB: Cash (24,000-1,000) $23,000
CR: Common Stock (2,000*3) $6,000
CR: APIC- Common (2,000(12-3) - 1000) 17,000
When you issue stock in a nonmonetary transaction, how do you assign a value to the stock?
use the value with the more reliable fair value to record the transaction (sometimes it might the market value of the stock or the goods/services received)
If you have land which is appraised at $32,000 and a market price per share of $15 per share, which value would you use to record the sale of stock?
You would use the market price per share because it is actively traded in the market.
You never use appraisals for fair value
Usually stock price is more reliable!
What is stock issued on subscription?
Corporations may issue stock in exchange for a promissory note. The investor is going to pay at some point in the future over a long period of time. It is cheaper to buy it on subscription.
Shares are not issued until they are fully paid for. It is a credit in OE and establishes a receivable in OE netting the transaction to zero on the equity account.
How are subscriptions impacted on the financial statements?
Shares are not issued until they are fully paid for. It is a credit in OE and establishes a receivable in OE netting the transaction to zero on the equity account.
Example, Journal Entry: On January 1 an investor contracts for purchase of 1,000 shares of $1 par common stock at a subscription price of $10.
Example: Journal Entry: On June 30 the investor pays $10,000 and 1,000 shares are issued
Example: Journal entry: Now assume no payment was made on June 30 and on Dec 30 the investor pays $6,000 and defaults on the remainder
DB Stock Subscription Receivable- Contra OE 10,000
CR: Common Stock Subscribed 1,000
APIC- Common Stock 9,000
Cash 10,000
Stock Subscription Receivable 10,000
Common Stock Subscribed 1,000
Common Stock 1,000
Cash 6,000
Stock Subscription Received 6,000
Common Stock Subscribed 600
Common Stock 600
APIC- Common Stock 3,400
Common Stock Subscribed 400
Stock Subscription Receivable 4,000
What are the possible actions of a default on Stock Subscriptions?
It depends on the contract and applicable state law:
1) Investor receives a refund and returns the stock
2) Investor returns unpaid stock
3) Investor returns all shares and receives no shares