Question

Describe the accounting for the issuance for cash of no-par value common stock at a price in excess of the stated value of the common stock.

Short answer

The issuance of no-par value stocks is recorded as debiting the cash account and crediting the equity account.

Step-by-step solution

Meaning of No-Par Value

Shares with no par value include a provision to have no redeemable value. The price of such a stock depends on the investor's willingness to pay for the stock.

Accounting for the issuance for cash of no-par value

The following is how the issuing of no-par value common stock for cash at a price higher than the stated value of the common stock is accounted for:

1. The proceeds from the issuing of common stock are debited to increase the cash account.
2. The stated value of the common stock is credited to Common Stock.
3. Capital Paid-in in Excess of the Stated Value: The excess of the proceeds from issuing common stock above its declared value is credited to Common Stock.