How should Owner's equity be calculated on Balance sheet, income statement and cash-flow....at par or same as private placement value?
We issued equity at par value, but was told we should re-issue at Private Placement Value.
Accounting For Owner's Equity
Answers
Since the debits need to equal the credits, what/how much did your firm receive for the shares?
1
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Best... Sarah
The stock would be recorded at the amount received for it. For example $10 debit to cash and $10 credit to equity account.
You might want to consider reflecting, in the credit to equity, the amount of the par value as such, and the rest as additional paid in capital.
Hmmmm. Need more information to give a good response. There is not one approach. Timing will have an impact.
On the balance sheet, and in the cash flow statement, record at the amounts received for the issuance of the stock.. I am unclear regarding the "income statement" reference. Par has limited significance in liquidation but not for any other reason.
Owners' Equity, better known as Shareholders' Equity, is made up of various parts:
1) Common and Preferred Stock Issued (a Credit Balance):
a) The total amount received for stock issued is credited to either Common
Stock or Preferred Stock, but should be split between the following for each:
* Par Value (the legally designated share value in incorporation documents)
* Paid In Capital (the amount rec'd in excess of Par Value
The costs of the share offering are charged against Paid In Capital, and such
costs include Legal fees associated with preparing the offering documents and
handling the issuance of shares, fees paid to investment bankers for arranging
a stock offering, travel and entertainment expenses directly related to the
offering of shares,
financials used in an offering document.
Typical accounting entry for stock sales would be as follows:
Dr. Cash
Paid in Capital - Common Stock (for costs of issuing stock)
Paid in Capital - Preferred Stock (for costs of issuing stock)
Cr. Par Value - Common Stock
Paid In Capital - Common Stock
Par Value - Preferred Stock
Paid In Capital - Preferred Stock
b)
The amount paid for shares of Common or Preferred is charged to
Shareholders Equity for each type of shares repurchased - Common or
Preferred Stock repurchased.
c) Total of a) and b) = Net Total for Stock Issued
Typical accounting entry for stock repurchases:
Dr. Treasury Stock - Common
Treasury Stock -- Preferred
Cr. Cash
Stock transactions are not part of Operating Income or Revenues in the Income Statement. They are Non-Operating sources of Cash.
3) Retained Earnings:
a) Accumulated Net Earnings (net of losses if the number is still positive)
This account holds all Net Income/Losses and. If accumulated Losses
exceed acculuated Net Income, the balance is called Accumulated Deficit.
b) Current Year Net Income or Loss (the amount from the Income Statement)
c) Dividends Paid - a Debit balance (the cumulative Dividends actually paid for
each class of stock -- Common or Preferred)
d) The total of a), b), and c) equals total Retained Earnings
Filed Under:
Accounting