Understanding the intricacies of stock issuance is fundamental for any aspiring CPA. This module covers the accounting principles and practical considerations involved when companies raise capital by selling their stock. We'll explore different types of stock, their issuance at par, premium, and discount, and the subsequent accounting treatments.

Companies can issue various classes of stock, each with distinct rights and privileges. The most common are common stock and preferred stock. Common stock represents ownership and typically carries voting rights, while preferred stock often has priority in dividends and liquidation but may lack voting rights.

Par value is an arbitrary amount assigned to a share of stock. When stock is issued at par, the cash received equals the par value. The journal entry debits Cash for the total amount received and credits Common Stock (or Preferred Stock) for the par value. Any excess is recorded in Paid-in Capital in Excess of Par.

Most commonly, stock is issued at a price higher than its par value. This excess is known as a premium. The accounting treatment involves crediting the stock account for its par value and crediting 'Paid-in Capital in Excess of Par' (or 'Additional Paid-in Capital') for the difference between the issue price and the par value. This premium represents additional capital contributed by shareholders beyond the nominal par value.

Issuing stock below its par value, known as issuing at a discount, is generally prohibited by law in many jurisdictions because it can mislead investors and impair the capital of the corporation. If it were to occur, the discount would be debited to an account such as 'Discount on Common Stock,' which is a contra-equity account, reducing total paid-in capital.

Companies may issue stock in exchange for assets or services rather than cash. In such cases, the stock issued should be recorded at the fair value of the assets received or services rendered, or at the fair value of the stock issued, whichever is more clearly determinable. This ensures that the transaction is recorded at its economic substance.

Focus on the distinction between par value and market value. Understand the accounting for issuance at par, premium, and the implications of discount issuance. Be prepared to journalize transactions involving cash and non-cash considerations. Recognizing the components of contributed capital (Common Stock, Preferred Stock, Paid-in Capital in Excess of Par) is crucial for balance sheet analysis.