Describe accounting treatment when stocks are issued.

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Multiple Choice

Describe accounting treatment when stocks are issued.

Issuing stock is a financing activity that increases owners’ equity, not revenue. The par value represents a nominal amount per share and is recorded in equity as paid-in capital in the form of common stock. The portion received above the par value goes into paid-in surplus (often called additional paid-in capital). So, the par value is recorded as paid-in capital, and the excess over par is recorded as paid-in surplus. For example, issuing 1,000 shares with a par value of $1 at $5 per share results in: cash increases by $5,000, common stock increases by $1,000 (par value), and paid-in surplus increases by $4,000. This reflects the equity financing rather than operating revenue. If there were no par value, the entire proceeds would generally go into paid-in capital.

Issuing stock is a financing activity that increases owners’ equity, not revenue. The par value represents a nominal amount per share and is recorded in equity as paid-in capital in the form of common stock. The portion received above the par value goes into paid-in surplus (often called additional paid-in capital). So, the par value is recorded as paid-in capital, and the excess over par is recorded as paid-in surplus.

For example, issuing 1,000 shares with a par value of $1 at $5 per share results in: cash increases by $5,000, common stock increases by $1,000 (par value), and paid-in surplus increases by $4,000. This reflects the equity financing rather than operating revenue. If there were no par value, the entire proceeds would generally go into paid-in capital.

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