No-Par Stock
In most states, both preferred and common stock may be issued without a par value.
When no-par stock is issued, the entire proceeds are credited to the stock account. This
is true, even though the issue price varies from time to time. For example, assume that
a corporation issues 10,000 shares of no-par common stock at $40 a share, and at a later
date issues 1,000 additional shares at $36. The no-par stock is recorded as follows:Some states require that the entire proceeds from the issue of no-par stock be
recorded as legal capital. In this case, the preceding entries would be proper. In other
states, no-par stock may be assigned a stated value per share. The stated value is recorded
like par value. Assuming a stated value of $25 per share, 10,000 shares issued for $40
per share, and at a later date 1,000 additional shares issued at $36 per share, are
recorded as follows:500 Chapter 11 Stockholders’ Equity: Capital Stock and Dividends
When stock is issued in exchange for assets other than cash, such as land, build-
ings, and equipment, the assets acquired should be recorded at their fair market value.
If this value cannot be objectively determined, the fair market price of the stock issued
may be used.
To illustrate, assume that a corporation acquired land for which the fair market
value cannot be determined. In exchange, the corporation issued 10,000 shares of its
$10 par preferred stock. Assuming that the stock has a current market price of $12 per
share, this transaction is recorded as follows:Cash 110,000
Common Stock 2,000
Paid-In Capital in Excess of Par—Common Stock 108,000Land 120,000
Common Stock 100,000
Paid-In Capital in Excess of Par—Preferred Stock 20,000Cash 400,000
Common Stock 400,000Cash 36,000
Common Stock 36,000Cash 400,000
Common Stock 250,000
Paid-In Capital in Excess of Stated Value 150,000
Cash 36,000
Common Stock 25,000
Paid-In Capital in Excess of Stated Value 11,000SCF BS IS
—Ac SEc —SCF BS IS
Fc Ac SEc —SCF BS IS
Fc Ac SEc —Fc Ac SEc —SCF BS IS
Fc Ac SEc —Fc Ac SEc —