ADMS 3595 Lecture Notes - Share Capital, Issued Shares, Capital Account

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Published on 14 Apr 2013
School
York University
Department
Administrative Studies
Course
ADMS 3595
Professor
CHAPTER 15: SHAREHOLDER’S EQUITY
Accounting for Issuance of Shares
Shares basic
Example:
Full amount of proceeds received is credited to the respective share capital account
(preferred/common/class type)
500 common shares are sold for $10.00 each (issuance costs not included in this transaction).
The journal entry is:
Cash 5,000
Common Shares 5,000
Shares sold on a subscription basis
Example:
500 shares are sold on subscription for $20 each. 50% is due as initial payment.
The initial journal entries would be:
Subscription Receivable 10,000
Common Shares Subscribed 10,000
Cash 5,000
Subscription Receivable 5,000
If all payments are made as scheduled, the entries would be:
Cash 5,000
Subscription Receivable 5,000
Shares Subscribed 10,000
Share Capital 10,000
If the subscriber defaults, one of the following may happen (depending on the contract terms
and applicable legislation).
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Defaulted Subscription accounts
Default after first payment funds refunded with no penalty.
Shares Subscribed 10,000
Accounts Payable (or Cash) 5,000
Subscription Receivable 5,000
Default after first payment shares issued for amount paid.
Shares Subscribed 10,000
Share Capital 5,000
Subscription Receivable 5,000
Default after first payment funds held by corporation.
Shares Subscribed 10,000
Subscription Receivable 5,000
Contributed Surplus 5,000
Shares issued in combination with other securities
When two or more classes of shares are sold for a lump sum
Accounting problem is the allocation of the funds received to the respective share classes
Two methods available
Proportional method (relative market value method)
Incremental method
Direct incremental costs incurred to sell shares include legal fees, accounting fees, underwriter
fees & commissions, printing and mailing costs, taxes, etc.
These amounts are considered to be capital transactions (rather than operating transactions)
and therefore should not be included in net income calculation
Accounting treatmentdebit to Share Capital
Accounting for Share Issue Costs
Example
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