Journal Entry:
Issuing Shares for Assets

by Sarah
(Miami, FL)

Shares issuedComputer equipment

How would you write this in a journal entry: a company issued 2,660 shares of its common stock after $31,360 in cash and computer equipment with a fair market value of $43,120 were received.

A: The journal entry would be:

DR Bank $31,360
DR Computer equipment $43,120
CR Ordinary Share Capital $74,480
($31,360 + $43,120)

To explain the above, remember that what is happening here is we are getting more money and more computer equipment, which are both assets. Since assets increase on the left side they are both debited. The credit goes to ordinary share capital, which is a type of owner's equity for a company. Owner's equity exists and increases on the right side, so this is credited.

The entry above is a
composite entry (meaning an entry where there is more than one debit or credit). You can also write this in two separate entries, one for the cash received and one for the computer equipment received. In both these entries the credit would be to ordinary share capital (only for the value of the cash and the computer equipment individually):

DR Bank $31,360
CR Ordinary Share Capital $31,360

DR Computer equipment $43,120
CR Ordinary Share Capital $43,120

Ordinary share capital is the term used to describe ordinary shares (common stock) in most countries around the world. A different term may be used in the U.S.

Hope that makes sense and helps Sarah! Good luck!

Michael Celender

Comments for Journal Entry:
Issuing Shares for Assets

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Purchase a Machine Via Issue of its Ordinary Shares
by: Anonymous

So how to record for purchase an assets via an issue of 1000 000 of its ordinary shares of 0.50 each ?

Dr Assets 500,000
Cr Ordinary Share Capital 500,000

(1,000,000 X 0.50 = 500,000)

(Michael Celender)

Statement of equity in Manufacturing
by: Anonymous

How can I determine the value of ordinary shares and retained earnings for the statement of equity? Actually it is not stated specifically to the trial balance our professor had given us?

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