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The journal entry for issuing preferred stock is very similar to the one for common stock. This time Preferred Stock and Paid-in Capital in Excess of Par - Preferred Stock are credited instead of the accounts for common stock. ? Cash is an asset account that is increasing.
To issue stock in a corporation, you can use a simple bill of sale. Stock is issued to fund the corporation?in the Articles of Incorporation, the corporation sets the number of shares the corporation is authorized to issue. The corporation then decides how many shares of stock it will initially issue.
Upon issuance, common stock is generally recorded at its fair value, which is typically the amount of proceeds received. Those proceeds are allocated first to the par value of the shares (if any), with any excess over par value allocated to additional paid-in capital.
How is common stock calculated? The formula for calculating common stock is Common Stock = Total Equity ? Preferred Stock ? Additional Paid-in Capital ? Retained Earnings + Treasury Stock.
A company issues common stock to raise money, so the debit will always be to cash. There will always be a credit to common stock for the # of shares issued x the par value. Additional paid-in capital (APIC) is the plug.