 In this presentation, we'll record a transaction for the issuing of stock for a non-cash asset. So in other words, we're going to issue stock, but not for cash. We're going to get something else. We're going to get equipment. The information for this transaction will be on the upper left. We're going to record this to the general journal here, and then we will post it not to the general ledger, but to a worksheet to give us a quick example of the effect on the accounting equation and individual accounts. Our trial balance is in order by assets in green, liabilities in orange, equity in light blue, and income and expenses, the income statement, dark blue. Debits are non-bracketed, credits are bracketed. The debits minus the credits are represented by this green zero, meaning that the debits do indeed equal the credits. No net income at this time. That means that the revenue and expense accounts are all zero. So this is just a quick trial balance to show us something that is in balance, which is really useful and important when we record these transactions so we can get an idea of the double entry accounting system and what's the effect on the different accounts and the accounting equation. What we're going to do here is issue stocks, as we did in a prior presentation, but this time rather than getting cash, we're getting something else. We're getting equipment. So that is entirely possible. It is just like any type of transaction we have here. Hopefully we transact for cash, but very possible to transact for something else as well. In this case, we're going to issue ownership in the company, which is going to be giving stock, which is going to provide some type of ownership, some type of voting potential rights to the people purchasing stock in exchange for something of value that being the equipment. So we're going to have the issuance of 20,000 shares of $5 par-value stock for equipment valued at $150,000. So first we usually think about what are we going to get? We're not getting cash, we're going to get equipment. So we can put the equipment on the books, the equipment is an asset, that's what we're getting. Assets have debit balances. We're going to make it go up by doing the same thing to it, another debit. So we'll debit the equipment. Now the equipment value note that many problems will just give us the equipment value. It's important to note that we're basically doing kind of a market exchange here. We're selling our stock for the equipment. So we're going to have to agree upon the value of the equipment and the stock. We might use either one of those things to value the other. In other words, if the equipment has a stated value or market value, we know that equipment is selling for $150,000. We might use that then to determine what the market price of the stock is. If on the other hand the stock is very standard, like it's on a public exchange, then we have a pretty good idea of what the stock market price is because it's selling for that market price. We may use that to figure out what the equipment value is. So we're kind of doing a market transaction here and we'd have to do some idea about, okay, what is the correct market price for the equipment? If it's kind of unique equipment, then it might be a little bit more difficult to figure out that market price. If it's equipment that's being sold all the time and it's new, then it might be pretty easy to figure it out. The stocks, the same way, the actual market price of the stocks, if it's a privately held corporation, may not know it because we don't really sell the stocks all the time. We don't know exactly what the stock is worth and if on the other hand we'd have to appraise it possibly or something. If on the other hand it's trading on a stock exchange, then we know pretty good. We have a pretty good idea of what the stock is worth at that time because they're all the same. The beauty of stock, if they're trading for a particular price at any given time, that's pretty much what they're worth at that given time. So we're going to say the equipment's going to go up, then we're going to credit something. Now just like if we were to invest like in a partnership or a sole proprietor, we know that we would invest in this case equipment and then the other side would go to capital, the capital account for an owner. In this case, we're not going to list out the owners. We don't need to list out the owners. That's the beauty of a corporation. The only way the owners are represented is that they are holding shares of stock and however many shares of stock they hold, that's the differentiation between the owners. They can hold more or less stocks in relation to other owners. So all we need to do then is credit here still, but we're going to credit the common stock account representing the fact that there's more stock out there. We're going to do that first at the par value. So we're going to credit the par value that will make things standardized. How do we do that? We're going to take the 20,000 shares times the par value of $5, increasing it by 100,000. So it's a credit balance account. We're going to increase it by 100,000 in the credit direction. Remember that this par value just makes this standardized. It's making this number very uniform standardized number. That's the nice thing about it. That's why using the par value is relevant. The par value number itself has absolutely no meaning, completely arbitrary. Its form, its function is to standardize this number, make it uniform. Everything else is just going to go into the additional paid in capital, the amount that is not uniform. And it will have no tie out to the number of shares that are outstanding for the company because it depends on the market price. The market price will differ. The market price here is being determined, we're negotiating it by the agreement here between the equipment we are getting and the value of the stock. So here we're saying the equipment's worth 150. The par value is 100, therefore we need 50,000 to go into the additional paid in capital in order for the credits to be equivalent to the 150 debit. If we post this out then, we see the equipment, we're posting this equipment here, goes from zero up by 150 to 150, then we're going to post the common stock, it's going to go from 500,000 up by 100,000 to the 600,000. Again note the uniformity here, this is the point of the par value, this is the point of the par value, so we've got the 600,000 divided by 5. We'll tell us exactly how many shares are out there, that's why that nice math is why we have that. Then we've got the paid in capital at 50, it started at 60,000 goes up by 50 to 110,000. This is where the sloppy part happens, we don't know, this means nothing, we can't nicely divide it out by a par value, figure out the number of shares, we can't divide it by the number of shares and figure out the price we were paid all the time because the price we were paid will differ depending on when we sold it because the market price will differ as time passes. So here's what we got then, the equipment is going up, the common stock is going up and the paid in capital is going up, this then is the part of the equity section that just represents the investment by the owners, note there's no effect on net income here, we got something no effect on net income, instead we owe money back to the owners. We're not going to list who paid us, who we owe the money to, we know who they are by the fact that they're holding shares and that's who we're going to end up paying when we pay out things like dividends or if we were to liquidate the company. The earnings side of the equity section is here, so this represents earnings over the life of the company, retained earnings does, less any distributions we made in the format here of dividends, whereas if it was a sole proprietor we would pay out stuff in the form of draws. So here's just the stockholders equity section so we can get an idea of this and just see this long wording can be intimidating, again the format of this can be intimidating because we're not just listing out capital accounts which can be pretty straightforward and just say hey we owe this much money to this partner or this much money to the owner with one capital account for a partnership or sole proprietor. Here we've got this longer setup but remember the whole thing is the same in total, meaning this whole blue account if there's only one shareholder that owned all the shares then we would have the 600,000 plus the 110,000 plus the 658,000. We would owe that one owner 1,368,000 and that is representing the book value of the company or assets, what happened here? Assets of 1,238,000,000,000, 1,238,000 plus the 150,000,000 debits minus the credit or liability which will give us that 1,368,000 so this is the book value of the company. If we see that in terms of the statement of stockholder equity we typically write this whole thing out we say common stock has a five dollar should be but five dollar par value that's what the par value is arbitrary number we could say there's 150,000 shares authorized that means that we have to legal right to issue that many shares doesn't mean that that many shares have been issued and then we have the 120 shares issued in outstanding which we should be able to easily verify with this number coming from here which is the 600,000 divided by five par 120 then we've got the paid in capital paid in capital just representing what we got paid over the par value therefore the 710 the 600 plus the 110 represents the amount that we got in total investment for the selling of stock then the retained earnings represents the amount that has been accumulated over time the retained earnings is where we're going to close out the closing process close out net income to retained earnings we keep those separate because when we pay dividends we want to pay them out of retained earnings we don't want to pay them out of the initial investment that could have different consequences and including tax consequences we want to say hey we earned money we're going to pay back that earnings to the investors and not touch typically that initial investment that's what we would like to have happened so then this total here represents the total stockholders equity