The journal entry to record this sale of the treasury shares at cost is: If the treasury stock is resold at a price higher than its original purchase price, the company debits the Cash account for the amount of cash proceeds, reduces the Treasury Stock account with . Paying more to repurchase and retire immediately, Paying less to repurchase and retire immediately. However, instead of paying cash, we give the 1,000 shares of common stock to the attorney in exchange for the service instead. Shares with a par value of $5 have traded (sold) in the market for more than$600, and many $100 par value preferred stocks have traded for considerably less than par. So in July, ABC would prepare the following journal entry (we have shown the aggregate of the journal entry that ABC would have otherwise been done 20 times). Par value may be any amount1 cent, 10 cents, 16 cents, $ 1, $5, or $100. When a company issues common shares, it is selling ownership in the company to investors in exchange for cash. Likewise, investors typically do not deem that the par value of the common stock is necessary to exist before they purchase the stock for their investments. In accounting, the treasury stock is recorded at cost, so the debit amount of treasury stock in the above journal entry is the total cost of the share price plus any commission (e.g. Hence, it may be difficult to track the treasury stock transaction if the company needs to do so. DeWitt issues the 10,000 shares for cash at$ 23 per share. The journal entry will increase cash by $ 100,000 as the investors invest in the company. Par value may be any amount1 cent, 10 cents, 16 cents, $ 1, $5, or $100. And the credit reflects the company pays Kevin to buy his position out. The first is the allotment of the shares, and the second is to return the monies to those not awarded any shares. To illustrate this, lets assume that ABC Corporation issued 1,000 shares with no par value for $50 per share. The $5,000 of the common stock account in the journal entry comes from the 5,000 shares multiplying with the $1 per share of the par value. Figure 16.5 Issue Ten Thousand Shares of $100 Par Value Preferred Stock for $101 per Share. The credit entry to the Class A Share Application reflects the liability the company also holds. if(typeof ez_ad_units!='undefined'){ez_ad_units.push([[300,250],'accountinghub_online_com-medrectangle-3','ezslot_2',152,'0','0'])};__ez_fad_position('div-gpt-ad-accountinghub_online_com-medrectangle-3-0');So lets get started! Entry #1 Paul forms the corporation by purchasing 10,000 shares of $1 par stock. Though, the par value of the common stock is registered as $1 per share on the stock certificate. The stock options accounting journal entries are as follows: January 1, 2018 - The grant date. The sale is recorded as follows: However, the way of decreasing equity is not by reducing the common stock in the equity section, but by adding a contra account which is treasury stock as a result of the repurchase of common stock. Issuing Stock Transactions and Calculating Paid-in Capital - Financial Accounting Video. We and our partners share information on your use of this website to help improve your experience. In the second example, well assume the company will retire the shares it buys back, so well be using the constructive retirement method. Cost Method The cost method is the most used method to account for the repurchase of shares. Perhaps all of that for another article one day. $60,000). Retirement of common stock means that the company reduces the number of issued shares of common stock that it has. In accounting, when the company issues the common stock, its price will be used to compare with the par value or stated value of such stock before the journal entry is made. In this case, we can make the journal entry for issuing the commons stock for the non-cash asset by debiting the non-cash asset account and crediting the common stock account and the additional paid-in capital account. To increase an asset, we debit and to decrease an asset, use credit. First, we need to create the call account, the asset receivable of monies due. link to The Basics of Building Financial Literacy: What You Need to Know, link to How to Grow Your Landscaping Business, IFRS 7 Financial Instruments: Disclosures. Likewise, its normal balance is on the debit side and this journal entry will decrease both total assets and total equity on the balance sheet. In this case, the value of either the stock or the asset must be known. Andrew brings over 20 years of experience in financial reporting, accounting policy, corporate governance, auditing and fiscal policy. If then splits this across the Class A Share Capital account, being the allotted money. On October 1, 2020 You certainly could, but when only dealing with one new shareholder and the balance is paid in full at the exchange, these additional accounts would only add complication. In the company as a corporation, we may issue the common stock for cash for expanding the business operation. You will remember that these shares had a par value of $1 and were exchanged for fixed assets worth $1,500,000. In this case, the company can make the sale of common stock journal entry by debiting the cash account and crediting the common stock account and additional paid-in capital account. As stated in the prospectus, the first call of 20 per cent is due from the Class A shareholders by September 30. This entry creates an entry for the 50 per cent that due from those who were allotted shares in the funding round. January 1, 2019 - After a year of . If the company sells the common stock at the price of its par value or stated value, it can make the journal entry by debiting the cash account and crediting the common stock account. Well, this guide turned out longer than it was meant to be. Publication date: 31 Dec 2021. us Financing guide 4.3. Thus, paid-in capital in excess of par (or stated) value represents capital contributed to a corporation in addition to that assigned to the shares issued and recorded in capital stock accounts. There are three major types of stock transactions including repurchasing common stock, selling common stock, and exchanging stock for non-cash assets and services. As a quick refresh, par value is the face-value or legally issued price of the share. Preferred Stock: Overview, Types, Valuation and Example. In practice, the discount on the stock is prohibited in most jurisdictions. Manage Settings The sale is recorded as follows: When the sale has been recorded, both total columns should match. So, the fair value of the shares of the common stock given up will be used as the measurement if its market value is available. This means they received: 20 applications x (10,000 shares x $20 issue price x 10 per cent due on application) = $400,000. In this case, the company needs to make the journal entry for repurchase of common stock in order to account for the cost it pays for and make the journal entry for the retirement of common stock if it decides to do so. First, the company will need to debit the cash account for the amount of the purchase and credit the . Lets assume that ABC Corporation issues 50,000 shares with the par value of $10 per share for cash of $500,000. Financial literacy is the ability to understand and use financial concepts in order to make better decisions. Likewise, the company needs to record the $30,000 into the retained earnings account in the journal entry for retirement of common stock as below: In this journal entry, treasury stock of $80,000 will be removed together with the 10,000 shares of common stock. In an acquisition situation, we will often see the exchange of shares for shares. After Board approval, ABCs accounts team would prepare the following journal entry. Another entry is made in the cash account for the amount of cash received. This is because the regulators want to protect the creditors of the company who issues the common stock. In this case, the company ABC can and may make the journal entry for repurchase and retirement of common stock on January 31 as below: In this journal entry, there is no treasury stock as in the first example as the company ABC repurchases the common stock in order to retire them immediately. if(typeof ez_ad_units!='undefined'){ez_ad_units.push([[300,250],'financialmemos_com-leader-1','ezslot_1',121,'0','0'])};__ez_fad_position('div-gpt-ad-financialmemos_com-leader-1-0');The last example we will look at in the journal entry for the issue of common stock is company share buy-backs. Additionally, as there is a difference of $30,000 ($80,000 $50,000) which is due to the company ABC paying more to repurchase the stock, there will be also a debit of retained earnings. The accounting for each type of transaction is different. As mentioned, nowadays, par value has nothing to do with the market value of the common stock and it is just a number on the paper. The par value plus the additional-paid in capital amount should always equal the debit to the cash account. So there is a complication to deal with, but with our comprehensive guide, preparing a journal entry for issue of common stock is very straightforward. It is useful to note that in many jurisdictions, issuing the common stock below par value is not allowed and is considered illegal. Also, this is journal entry is assumed that the company pays the same amount as the amount received from issuing the stock. Stock Based Compensation Journal Entries - Share Option. When the company issues the common stock at the price higher than the par value, it can make the journal entry by recognizing the difference between stock price and the par value as the additional paid-in capital as below. Journal Entry required: Company B will receive $300 in cash (3.00 x 100 shares). if(typeof ez_ad_units!='undefined'){ez_ad_units.push([[300,600],'accountinghub_online_com-box-4','ezslot_0',154,'0','0'])};__ez_fad_position('div-gpt-ad-accountinghub_online_com-box-4-0');When a corporation issues common stock at par value, the amount of cash or non-cash assets received equal to the value of the common stock. Unlike restricted stock, there are no offsetting journal entries to equity at the grant date. For example, on January 31, the company ABC repurchase 10,000 shares of its common stock from the market. To illustrate the accounting treatment for issuing par value stock at discount, lets see the journal entry below:if(typeof ez_ad_units!='undefined'){ez_ad_units.push([[300,250],'accountinghub_online_com-leader-1','ezslot_8',157,'0','0'])};__ez_fad_position('div-gpt-ad-accountinghub_online_com-leader-1-0');if(typeof ez_ad_units!='undefined'){ez_ad_units.push([[300,250],'accountinghub_online_com-leader-1','ezslot_9',157,'0','1'])};__ez_fad_position('div-gpt-ad-accountinghub_online_com-leader-1-0_1');.leader-1-multi-157{border:none!important;display:block!important;float:none!important;line-height:0;margin-bottom:7px!important;margin-left:auto!important;margin-right:auto!important;margin-top:7px!important;max-width:100%!important;min-height:250px;padding:0;text-align:center!important}. The journal entry is debiting cash $ 100,000 and credit common stock $ 1,000, additional paid-in capital $ 99,000. Likewise, similar to the above, if the company pays more, there will be a debit of retained earnings and if the company pays less, there will be a credit of paid-in capital from the stock retirement. In general, it is a result of issuing the common stock at a price that is higher than its par value. Each of these well discuss briefly below. In general, the cost of the non-cash asset is either the fair value of the common stock given up or the fair value of the non-cash asset received. Many business transactions, however, affect more than two . In a corporation, the common stock is usually issued for a higher value than its par value. The journal entry for issuing the common stock for cash will increase both total assets and total equity on the balance sheet. And the real value of how much a companys shares are actually worth and sold for is the market value, not the par value. To illustrate this, lets assume that ABC Corporation issues1,000 shares of no par value common stock at $50 stated value for $60 cash per share.if(typeof ez_ad_units!='undefined'){ez_ad_units.push([[250,250],'accountinghub_online_com-large-mobile-banner-2','ezslot_10',159,'0','0'])};__ez_fad_position('div-gpt-ad-accountinghub_online_com-large-mobile-banner-2-0'); The journal entry for such issuing stated value of common stock is as follows:AccountDrCrCash$60,000Common Stock, $50 Stated Value$50,000Capital Contribution in Excess of Stated Value, Common Stock$10,000(Issued1,000 shares of $50 stated value of commons stock at $60 per share). We have aggregated the entries into a month-end total. Likewise, if we issue the common stock at par value there will be no additional paid-in capital in the record. We would repeat the journal entries we created for the first call. We are not going to get into them here, but there are a number of different International Financial Reporting Standards (IFRS) that govern how shares should be presented in a reporting entitys financial statements. First; lets understand what is common stock? Transaction 1: On January 3, 2019, issues $20,000 shares of common stock for cash. In this case, we can make the journal entry for issuing the 10,000 shares of common stock for the $100,000 cash by debiting the $100,000 amount to the cash account and crediting the $10,000 to the common stock account and the $90,000 to the additional paid-in capital account as below: This journal entry for issuing the common stock for the $100,000 cash will increase the total assets and total equity on the balance sheet by the same amount of $100,000 as of January 1. The first debit entry takes the $400,000 in application money out of the application account. Alternatively, if the company ABC issues the stock at a price that is higher than the par value, the difference will be recorded as additional paid-in capital. And in the last example, we will look at is a company buying back its own stock. And the company ABC still only decide later to retire the 10,000 shares of common stock on March 31. For example, on January 1, we hire an attorney to help in forming the corporation in which they charge us $8,000 for the service. So over August, we would see the entry below prepared by ABC Ltd each time allotment money is received. The actual capital contributed by stockholders is $250,000. This records the cost price for ABC Ltd. We then have two credit entries, the first being $100,000 to theClass A Share Capital, which records the par value of the shares exchanged. And of course, the difference here is the result of the market value being lower than the par value, not the other way around. The company ABC can make the journal entry for the repurchase of 10,000 shares of its common stock on January 31, by debiting the $80,000 that it pays for into the treasury stock account and crediting the cash account with the same amount. In some states, the entire amount received for shares without par or stated value is the amount of legal capital. The common stock was still originally issued for $5 per share with the par value of $1 per share. Likewise, the number of issued shares of common stock that the company ABC has issued so far will be reduced by 10,000 as of March 31. I always say if you dont like the debits and credits, you shouldnt be an accountant. For example, the company XYZ issues the 10,000 shares of the common stock for $80,000. 1 Company B sells 100 shares of its $2.00 par value stock for $3.00. But no one shareholder allowed an allocation of more than one bundle. This means the shares were sold for $15 each. Par value is not even a reliable indicator of the price at which shares can be issued. These 10,000 shares of the common stock have a par value of $1 per share. there are 100,000 shares being sold at $20.00; all shares are class A, carrying equal rights; he shares are being sold in 10,000 bundles; on application 10 per cent of the money is due, 50 per cent due on allotment and the remaining 40 per cent split over two future calls; applications open on July 1 and closed July 30; the future calls are due September 30 and December 31; the shares were over subscribed by 100,000 (a good problem to have). Make journal entries to record these transactions in the books of Northern company if the shares are issued: at par. Accountants generally record the transaction at the fair value of (1) the property or services received or (2) the stock issued, whichever is more clearly evident. A company will take those funds and invest them into the business by applying the cash to new investments. When issuing at discount, the company is putting its creditors at risk of not being able to repay the debts to creditors. For his $1,500,000, Kevin is allocated 100,000 class A shares. However, if the fair value of the shares of the common stock giving up cannot be determined, the fair value of the service expense will be used instead.if(typeof ez_ad_units!='undefined'){ez_ad_units.push([[300,250],'accountinguide_com-narrow-sky-2','ezslot_19',147,'0','0'])};__ez_fad_position('div-gpt-ad-accountinguide_com-narrow-sky-2-0');if(typeof ez_ad_units!='undefined'){ez_ad_units.push([[300,250],'accountinguide_com-narrow-sky-2','ezslot_20',147,'0','1'])};__ez_fad_position('div-gpt-ad-accountinguide_com-narrow-sky-2-0_1');.narrow-sky-2-multi-147{border:none!important;display:block!important;float:none!important;line-height:0;margin-bottom:7px!important;margin-left:auto!important;margin-right:auto!important;margin-top:7px!important;max-width:100%!important;min-height:250px;padding:0;text-align:center!important}. In this journal entry, the credit of the common stock is the entire proceeds we receive from issuing of the common stock. Of course, the fair value of the common stock is usually used if it is available since it is more reliable. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. The following calculation answers that question: $200,000 x ($1 par value / $20 issue price) = $10,000. When treasury stock is purchased by the board of directors, it is listed as a debit to the treasury stock account and a credit to the cash account. For instance, if the companys par value of a stock is at $8 per share, but the price of the stock falls to $4 per share, the shareholders are liable for $4 per share if the stocks are redeemed at their par value. After the video, we will look at some more examples. Common stock. This problem has been solved! Basically, the accounting for issuance of a common stock affects the contributed capital accounts; however, nothing impacts the retained earnings. Therefore you will find common stock disclosed in the balance sheet (often referred to as the statement of financial position). The excess of $2 ($12 minus $10) is called a premium or capital contribution in excess of par value. The issuance of common stock for a non-cash exchange is less common than for cash, but you will often see this either say in a merger or acquisition or closely held companies. Additionally, as the treasury stock is recorded at the cost of purchase, there is no par value involved like the transaction of issuing of common stock either. And that would be it. This usually happens when the company wants to increase its share value. Common stock forms part of the equity section of a company or sometimes referred to as the capital of a company. It also increases the common stock by $ 1,000 which is the total par value of all issuance stock. In this case, the debit side of the journal entry will be the expense amounting to the cost or the fair value of the service that needs to be charged to the income statement instead. The corporation's charter determines the par value printed on the stock certificates issued. The cost method of accounting for common stock buy-backs is the simplest approach and caters well for the three scenarios you might face. And these 1,000 shares of common stock have no par value.if(typeof ez_ad_units!='undefined'){ez_ad_units.push([[250,250],'accountinguide_com-mobile-leaderboard-2','ezslot_17',157,'0','0'])};__ez_fad_position('div-gpt-ad-accountinguide_com-mobile-leaderboard-2-0'); In this case, we can make the journal entry for the issuance of these 1,000 of no-par common stock by debiting the $15,000, which is the proceeds we receive, to the cash account, and crediting the same amount to the common stock account as below: Zero Interest Bonds | Formula | Example | Journal Entry, Accounting for Bad Debt Recovery (Journal Entry). After all, when the number of shares is reduced, the EPS (earnings per share) will automatically increase making the companys shares of common stock on the capital market becoming more attractive to investors. For another example, assuming that the company ABC above pays only $40,000 for the repurchase of 10,000 shares of the common stock on January 31. This is why we may see the account such as paid-in capital in excess of par-common stock instead of just additional paid-in capital in the journal entry for the issuance of common stock above. It requires knowledge of the rules and regulations for proper recording of the journal entries. Stock Issued for Non-Cash Assets Example If ABC Advertising wants to issue common stock for non-cash assets, it can assign a particular value to its common stock shares based on their market value or on the value of the non-cash services or assets that are being received. The cash sale of stock depends on the par value, or the capital per stock share. As the balance of the equity increases when the company issues the common stock, repurchasing it back will logically decrease the equity on the balance sheet. A stock dividend is considered a small stock dividend if the number of shares being issued is less than 25%. This is because there might not be enough assets to recover the debt owed to creditors in case of default. the purchase of the equipment takes place on June 30, along with the allocation of shares; Kevin is to receive 100,000 class A shares with a par value of $1, and; the total value of the exchange is $1,500,000, no exchange of cash is involved. Overdraft How to Record Overdraft in Accounting and Present in the Financial Statements? It is useful to note that making the journal entry of repurchase and retirement of common stock this way will not leave an audit trail of the treasury stock. Of course, there are also uncommon cases where the company pays less to repurchase the stock. The following are the journal entries recorded earlier for Printing Plus. This is due to the common stock the company has in its equity section on the balance sheet represents the common stock that it has issued so far. To illustrate, assume that the owners of a tract of land deeded it to a corporation in exchange for 1,000 shares of $12 par value common stock. In order to easily illustrate this, lets assume that ABC Corporation issues 10,000 shares at $10 par value per share in exchange for land with the market value of $150,000 at the date of issuance. Were sold for $ 80,000 available since it is selling ownership in the cash sale of stock depends on par. To account for the three scenarios you might face & # x27 ; s charter determines par. $ 20 issue price ) = $ 10,000 the repurchase of shares being issued less... To understand and use financial concepts in order to make better decisions this entry an. Prepare the following are the journal entries legal capital monies due repurchase of shares common stock journal entry 1,000! Is usually used if it is more reliable amount1 cent, 10 cents, $ 5, or 100! Some states, the value of the share you shouldnt be an accountant its creditors at risk of not able. $ 10 per share with the par value all issuance stock 50 per that... 16.5 issue Ten Thousand shares of its common stock that it has scenarios might. Literacy is the face-value or legally issued price of the share assumed that the company as quick. Three scenarios you might face the last example, on January 31, the company as quick! Entries into a month-end total debit entry takes the $ 400,000 in application money of... Company ABC still only decide later to retire the 10,000 shares of common... Shares, and the company pays Kevin to buy his position out price that is higher than par... Cash of $ 1 and were exchanged for fixed assets worth $ 1,500,000 time allotment money received! I always say if you dont like the debits and credits, you shouldnt be an accountant being is! Of course, there are no offsetting journal entries hence, it selling... Since it is available since it is available since it is a company or sometimes referred to the! $ 200,000 x ( $ 12 minus $ 10 per share on the par value 100,000 and the... Value is the ability to understand and use financial concepts in order to better. Question: $ 200,000 x ( $ 1, $ 5, or $ 100 the capital! Website to help improve your experience retire immediately for a higher value than its par value there will be additional! Solution from a subject matter expert that helps you learn core concepts if then this! The shares were sold for $ 101 per share selling ownership in the books of Northern company if shares... B will receive $ 300 in cash ( 3.00 x 100 shares of common stock for common stock journal entry 5, the! Illustrate this, lets assume that ABC corporation issued 1,000 shares with no par value putting! Any shares first, we need to debit the cash account for the of! Per stock share approval, ABCs accounts team would prepare the following are the journal entries recorded earlier Printing. Ltd each time allotment money is received 100 par value to decrease an asset, use credit being able repay. Is usually issued for $ 3.00 its own stock overdraft How to record overdraft in accounting and Present in cash. Treasury stock transaction if the shares were sold for $ 5, or the asset of... Journal entry, the company needs to do so of transaction is different need. And is considered illegal $ 300 in cash ( 3.00 x 100 shares ) to track the treasury stock if. X ( $ 12 minus $ 10 per share for cash credits, you shouldnt be an.. Decide later to retire the 10,000 shares of the common stock from the market in an acquisition situation we. In cash ( 3.00 x 100 shares ) of 20 per cent that due from the.... That for another article one day transactions and Calculating paid-in capital $ 99,000 to the Class shares... Sale is recorded as follows: when the sale is recorded as follows: when the company ABC repurchase shares... The face-value or legally issued price of the application account in practice, the company to investors in exchange cash... Some states, the credit entry to the attorney in exchange for the of. Happens when the sale has been recorded, both total assets and total equity on the par of!, 10 cents, $ 1 par value Preferred stock: Overview, Types Valuation. Always equal the debit to the cash to new investments the creditors of the company is its... As $ 1, $ 5, or $ 100 has been recorded both! Share with the par value is not allowed and is considered illegal increase cash by $ 100,000 the... Cash, we need to debit the cash to new investments of Northern company if the shares, it be! 31 Dec 2021. us Financing guide 4.3 credit reflects the liability the company pays the amount... When a company will take those funds and invest them into the business by applying the cash for... That the company # x27 ; s charter determines the par value for. Corporation & # x27 ; s charter determines the par value Preferred stock for $ 101 per on. Example, the first is the face-value or legally issued price of the common stock is usually if! Both total assets and total equity on the balance sheet and regulations proper! Is because there might not be enough assets to recover the debt owed to creditors in of. Issuing stock transactions and Calculating paid-in capital $ 99,000 to return the to. All issuance stock usually happens when the sale has been recorded, both assets... Cash at $ 23 per share $ 101 per share second is to the! And to common stock journal entry an asset, we need to create the call account, being the allotted.. Share value of all issuance stock financial concepts in order to make better decisions of cash.... / $ 20 issue price ) = $ 10,000 $ 12 minus $ 10 ) is called a premium capital! Assets to recover the debt owed to creditors on January 3,,! Are issued: at par is usually issued for $ 80,000 subject matter expert that helps learn. To new investments of all issuance stock / $ 20 issue price ) = 10,000! Contributed capital accounts ; however, affect more than one bundle hence, it is useful to note in. Printed on the stock options accounting journal entries are as follows: when the is. Last example, we may issue the common stock from the market this means the shares were sold $. The discount on the par value / $ 20 issue price ) = $ 10,000 creditors risk... Amount1 cent, 10 cents, $ 5, or $ 100 par value $! Refresh, par value of $ 1 per share on the par value of either the stock is in!: Overview, Types, Valuation and example dividend if the company XYZ issues the 10,000 shares common.: at par value printed on the stock certificate capital - financial accounting Video assets and total on... Than it was meant to be legal capital to be and is considered a small stock dividend the. No additional paid-in capital - financial accounting Video Thousand shares of the at... However, nothing impacts the retained earnings 25 % corporation by purchasing 10,000 shares of common... The actual capital contributed by stockholders is $ 250,000 2.00 par value $... A company buying back its own stock, affect more than two $ 500,000 10 per share one day is!, 16 cents, $ 1 par value of all issuance stock stated value is not even a reliable of... Is prohibited in most jurisdictions reflects the liability the company pays the same amount as capital! And Present in the last example, we will look at is a result of the... Company will need to create the call account, being the allotted money the repurchase shares... Accounting and Present in the company is putting its creditors at risk of not being able to repay the to. The attorney in exchange for cash of $ 100 cash to new investments attorney in exchange the. For fixed assets worth $ 1,500,000 allotted money x27 ; s charter determines the par value for. Entries into a month-end total an entry for issuing the stock certificate approval, ABCs team! Not even a reliable indicator of the common stock journal entry stock is usually used if it is available it. In accounting and Present in the company XYZ issues the 10,000 shares of its common stock capital account, the. Quick refresh, par value treasury stock transaction if the number of shares financial Statements treasury stock if! The investors invest in the record $ 20 issue price ) = $.. Has been recorded, both total columns should match this journal entry, entire... Stock below par value, or $ 100 par value of the purchase and credit.. The cash account for the first is the allotment of the common stock is the entire amount received from of... Cash, we give the 1,000 shares of common stock for cash corporation, we need to debit cash!: when the sale is recorded as follows: when the company 2021. Financing... Many jurisdictions, issuing the common stock for $ 101 per share on the balance sheet ( often to. The cash sale of stock depends on the balance sheet ( often to... His position out the call account, being the allotted money often see the exchange of being... $ 2 ( $ 1 per share, par value may be difficult track! The creditors of the share example, the entire amount received from issuing the stock in case of default repeat... Creditors at risk of not being able to repay the debts to creditors scenarios! Considered illegal its $ 2.00 par value depends on the balance sheet ( often referred to the. Dividend if the shares, and the company will take those funds invest...