174k views
5 votes
When a corporation issues shares of common stock for an amount above par, what two accounts do we credit?

User Managerger
by
8.5k points

1 Answer

3 votes

Final answer:

When shares of common stock are issued above par, the accounts credited are Common Stock at par value and Paid-in Capital in Excess of Par - Common Stock.

Step-by-step explanation:

When a corporation issues shares of common stock for an amount above par, the two accounts we credit are Common Stock at par value and Paid-in Capital in Excess of Par - Common Stock (also known as Additional Paid-in Capital). The Common Stock account is credited for the par value of the shares issued, which is the nominal value assigned to each share. The excess amount over par, which represents the premium that investors are willing to pay over the par value, is credited to the Paid-in Capital in Excess of Par - Common Stock account. This account reflects the additional capital that the firm receives from investors beyond the par value of the stock.



For example, if a company's shares have a par value of $1 and the company issues 100 shares at $10 each, the company receives $1,000 in total. In this scenario, the accounting entry would be a debit to Cash (or another asset account) for $1,000, a credit to Common Stock for $100 (100 shares × $1 par value), and a credit to Paid-in Capital in Excess of Par - Common Stock for $900 (100 shares × $9 premium over par).

User Hamdi Baligh
by
6.8k points

No related questions found