 Hello and welcome to the session in which we would look at issuing stocks for cash and non-cash transaction. Now, why is issuing stock important? Well, issuing stock is important, whether you are an accounting students or CPA candidate, because these type of transaction are the basic blocks for later intermediate and advanced concepts. Issuing stocks is usually done for cash. That's why in the real world, companies issue stocks to finance themselves. It's a form of financing. But company can also issue stocks to buy another company. And you will see this in advanced accounting to buy property, plant and equipment, to pay off debt, to pay expenses. So knowing how to issue stocks, you can build on this knowledge in your advanced and intermediate accounting courses. But before we start, I would like to remind you that if you are an accounting students or CPA candidate to check out my website, especially if you are a CPA candidate, I don't replace your CPA prep course. I cannot replace your backer, your Roger, your Glyme or your Wiley. What I can do, I can be a useful addition to your CPA course. I can add to your knowledge where you can add your score by 10 to 15 points. Are you willing to take that chance? In other words, here's my challenge to you. I'm offering you the following. You wanna take your chance in increasing your score 10 to 15 points by giving me a subscription for one month. If you like the subscription, that's excellent. You can renew and keep on going. And my courses are mapped out to help you study for your Wiley, Glyme, Roger, and backer. So I have everything organized so it works with any course that you are taking. And also what I want you to do, if not for anything, check out my website for the CPA, CPA exam university performance. You wanna know how well is your university on average does on the exam? Because this is gonna tell you how good is your accounting program. Also I have many accounting courses you could check out. LinkedIn, you wanna connect with me on LinkedIn. And also on LinkedIn, many people write me recommendations about my website and lectures, check them out. Maybe they might convince you. Like my YouTube, like this recording, share it. If it's helping you, it means it might help other people as well. Connect with me on Instagram and Facebook. So let's take a look at this exercise and start to kind of roll over our sleeves and start to journalize entries. So it's very important that you know this, I'll say this is a basic problem. During its first year of operation, Adam Corporation entered into the following transaction relating to its shares, shareholders equity. The article of incorporation issue 9 million common stock shares. So this is how much they are authorized to issue up to 9 million. It's a $1 par value per share. So the par value per share is something that's assigned to the stock. It's an arbitrary amount assigned to the stock. It's $1. And they are authorized to issue 3 million preferred shares at $50 per share. So here they have two types of shares. They have common stock and preferred stock. The common stock has a par value of a dollar. The preferred stock has a par value of 50. Now, you really want to know the difference between common and preferred. Once you understand the common, you'll be able to understand the preferred, you really want to know the difference. What is a common stock? What is a preferred stock? What are the features of common versus preferred? You will be tested on those on the CPA exam. Again, I'm gonna invite you to visit my website for detailed lessons and explanation about those. Let's go ahead and get started. February 12th, sold 2 million common shares for $10. Sometime the problem says sold, sometime it says issued. It's basically the same thing. If we sold 2 million shares, we sold each share for $10. This is how much we sold each share for. Well, if we sold them for $10 per share times 2 million, it means we received cash of $20 million. Therefore, we debit cashed $20 million. Now, the question is what do we credit? Well, we're gonna credit common stock because we issued stock. This should be indented a little. The credit should be indented. We're gonna credit common stock. How much do we credit common stock? And I want you to basically memorize this. How much do we credit common stock? Basically, there's a formula. We'll take the number of shares. Number of shares times the par value. Well, how many shares are we issuing? 2 million. 2 million shares we are selling or issuing. What's the par value for common shares? A dollar. Simply put, we credit common stock for 2 million. Well, this does not balance. We still have something missing. Anything that's missing, it's a plug, okay? And what's that plug? That plug is for additional paid-in capital or paid-in capital in excess of par. So what's left is 18 million. So simply put, this number is a plug. Now, it's important to understand this. Now, why is it important to understand this? Because eventually, we're gonna issue stocks in a stock option transaction, stock right transaction. You're gonna exchange stocks for bonds. So it's always remember that the paid-in capital is the last number, and usually it's a plug. Not usually, it's a plug. Basically, it will make the, as long as you accounted for everything else, what's left is paid-in capital. So 18 million is paid-in capital. Now, what I need to tell you is this. Both of these accounts are the same, and this is also a credit. Paid-in capital should be indented a little, okay? So both of these accounts are equity accounts. They are listed separately. Now, what happened if the company don't have a par value? If it doesn't have a par value, it's easier. You debit cash 20 million, you credit common stock 20 million, and you will not have paid-in capital if the stock does not have a par value. Okay, that's basically, this is as simple as it gets in terms of issuing stock, and always stocks are issued above the par value. On February 13th, we issued 48,000 common shares to attorneys in exchange for legal services. So what happened here is this. We hired attorneys to help us, whatever organized the company, or whatever the reason is, and we don't have money to pay them. So rather than paying them cash, we issued them 48,000 shares and said, okay, they accepted our shares. And as far as we know, we paid for the expense. Therefore, we have a legal expense for how much? 480 million, 480,000. Now, we're gonna assume here that the price of the stock is the same between February 12th and February 13th. So in other words, here, we are assuming the stock price is $410, okay? One more time, we are assuming here that the stock price is $410. So we are giving the value of the stock price. It should be added, but now I just added it for you. Otherwise, otherwise, so why is this important? Otherwise, if we don't make this assumption, if we don't make the assumption that the stock price is $10, we have to find out how much in legal services we received, maybe we received 600,000 worth of legal services, then the expense will be to legal expense, 600,000. Here we are assuming that we know that the stock price is $10 because there is no difference between February 12th and February 13th. The stock should not change that much. Well, in the real world, they do change, but we're gonna assume they don't change, okay? So hopefully this makes sense. So first, we debit legal expense for 480,000. Why did we do so? Because we assume the stock price is $410. Now we need to credit common stock. How much do we credit common stock? Number of shares times the par value. Again, this is a credit we indent, 48,000. Good. What's left is paid in capital and access of the par value, which is 432,000. So notice here, we issued stock for legal expense because we did not have cash to pay the lawyers, the attorneys, 480,000. Well, we gave them some ownership in the company. We gave them 48,000 shares. They accepted the shares. We recorded the expense. Everyone is happy. We can move on with our life. Now let's take a look at February the 13th transaction. We sold 72,000 shares, common stock, and 5,000 preferred shares for a total of a million dollars. So we sold common and preferred, but the total amount was a million dollars. So let's start with cash. So at least on the CPA exam, debit cash. You know that you received cash of a million dollars. Now the question is, well, how are you gonna separate the cash between common and preferred? Well, how am I gonna do so? I know that my common is worth $10 per share. So I have a million dollar that I received. Here's what's gonna happen. Some of it, it's gonna go to common stock. Some of it, it's gonna go to preferred stock. Well, I know that my common stock is for $10. It means the common stock in total would receive 720,000. And what's left will go to the preferred stock. What's left is 280,000. This is how much should go to the common, how much should go to the preferred. Now I need to know the journal entry. Well, the journal entry, I'm gonna have to credit common stock for the number of shares, 72,000 times the par value, and the remainder will be for APIC, additional paid in capital. The preferred stock follow the same concept. When you're issuing preferred stock, it's gonna be total of 280,000. We're gonna credit preferred stock for the number of shares, 5,000 times the par value of $50, which is 250,000. And what's left, it will be also additional paid in capital preferred stock for 30,000. Let me show you the entry. Common stock. We credit common stock. This is all credit, so this is indented. We credit common stock for 72,000. Why 72,000? Well, 72,000 shares times a dollar. That's the par value. What's left of the 720 goes to additional paid in capital 648. Now we need to credit preferred stock. How much do we credit preferred stock? The same concept as common stock, the same concept. What does it mean the same concept? It means number of shares, which happens to be 5,000 times the par value, which has happens to be $50. So we credit preferred stock for 250,000. What's left is 30,000 for paid in capital in excess of par value. So we're done with this entry. Let's take a look at November the 15th. We issued 385,000 common stock in exchange, an exchange for equipment for which the cash price was known to be 3,848,000. Now read this problem very carefully. We issued stock and this was November the 15th, way after February the 14th. Remember February the 14th, we knew that the stock was trading at $10. Now November the 15th, they're not telling us and we cannot make an assumption about the price of the stock. But what we are told, we exchange them. And if you wanted to buy those equipment, the cost would have been 384,480. So the cash price. So the value that we receive is that much. Well, since we don't know the common stock, we're gonna go with the value of the property we received, which is 3,848,000. Therefore we debit property, plant and equipment for that amount. Now why did we do so? We don't know how much our stock is traded at at November the 15th. Therefore we have to use the value of the, the fair value of the asset we receive because that's given right here. First we go with our stock. If we know how much our stock was traded at, we use that price. If not, we have to find out if we know the price of the asset that we are receiving. Usually you should know one or the other. Again, you start with your own stocks. Now if they told me I issued stock and the stock was for $12, I would assume the value of this transaction is $12 times 385,000 shares. I'm not told that. I am told the value of the property, plant and equipment. Therefore I have to go with that. Now I need to credit common stock. How much would I credit common stock? Hopefully we know this by now. Number of shares times the power value, which is this is again indented, 385,000 times the dollar, times the dollar power value. What's left is paid in capital. Again, this number is in intended, indented. Now, if you notice here that we issued stocks for cash, non-cash transaction, we can issue stocks to buy another company. We could issue stocks to retire debt. So knowing how to issue stocks, the basic transaction is extremely important, whether you are an accounting students or CPA candidate. Again, at the end of this recording, I'm gonna invite you to check out my website. That's all I'm gonna ask you to do because it will help you improve your CPA grade. It will help you improve your knowledge. In the CPA exam, it's not like your, it's not like your college exam where you kind of know the material, you get a C and you move on with your life. It doesn't work that way. On the CPA exam, the testing, the testing software, which is the AI CPA, they want to be confident that you really know the material before they give you that 75% passing grade. So it's not like your college exam where I kind of know it, the teacher likes me, the teacher's my curve. I will pass the course totally different. The CPA exam, you have to have a really good knowledge, really good, good knowledge about your performance. Anyhow, that's my challenge to you. Are you willing to make that risk? To try it for one month, see if it improve your grade. Anyhow, stay safe, good luck, and study.