1. © 2014 Cengage Learning. All Rights Reserved.
Learning Objective
LO5 Journalize transactions related to equity financing.
© 2014 Cengage Learning. All Rights Reserved.

2. Lesson 18-3
Issuing Capital Stock
LO5
Obtaining capital by issuing stock in a corporation is called equity financing.
A value assigned to a share of stock is called the par value.
The date on which a business issues a note, bond, or stock is called the issue date.

3. Issuing Capital Stock LO5
Lesson 18-3
Issuing Capital Stock
LO5
February 25. Sold 10,000 shares of $10.00 par value common stock at par value, $100, Receipt No. 16.
100,000.00
Cash
100,000.00
Capital Stock—Common 1
Account Title 2
Par Value of Issued Stock 3
Cash Received

4. Issuing Stock in Excess of Par Value
Lesson 18-3
Issuing Stock in Excess of Par Value
LO5
24,000.00
Cash
August 4. Sold 600 shares of $10.00 par value common stock at $40.00 per share, $24, Receipt No. 811.
6,000.00
Capital Stock—Common
Paid-in Capital in Excess of Par—Common
18,000.00 1
Account Title 3
Par Value of Issued Stock 5
Cash Received 2
Account Title 4
Cash Received in Excess of Par Value

5. Issuing Preferred Stock at Par Value
Lesson 18-3
Issuing Preferred Stock at Par Value
LO5
Preferred stock is a class of stock that gives preferred shareholders preference over common shareholders in dividends along with other rights.
Preferred stock is typically described by referring to the stock’s dividend rate and par value.

6. Issuing Preferred Stock at Par Value
Lesson 18-3
Issuing Preferred Stock at Par Value
LO5
August 16. Issued 400 shares of 6%, $50.00 par value preferred stock at par value, $20, Receipt No. 815.
20,000.00
Cash
20,000.00
Capital Stock—Preferred 1
Account Title 2
Par Value of Issued Stock 3
Cash Received

7. Lesson 18-3 Audit Your Understanding
1. Is a corporation required to issue dividends? Explain.
ANSWER
No. Dividends do not have to be paid to stockholders unless the earnings are sufficient to warrant such payments.

8. Lesson 18-3 Audit Your Understanding
2. How is preferred stock typically described?
ANSWER
By the dividend rate and par value

9. Lesson 18-3 Audit Your Understanding
3. In what order is cash paid to preferred and common stockholders if a corporation is dissolved?
ANSWER
Preferred, then common

10. Lesson 18-3 Audit Your Understanding
4. What is the most common reason that investors purchase preferred stock?
ANSWER
To earn dividends