Clothing Frontiers Began Operations On January 1 And Engages

Clothing Frontiers Began Operations On January 1 And Engages In The F

Clothing Frontiers began operations on January 1, and engages in the following transaction during the year related to stockholders’ equity. January 1 Issued 700 shares of common stock for $47 per share. April 1 Issued 110 additional shares of common stock for $51 per share. Required: 1. Record the transactions, assuming Clothing Frontiers has no-par common stock. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field.) 2. Record the transactions, assuming Clothing Frontiers has either $1 par value or $1 stated value common stock. (If no entry required for a transaction/event, select “No journal entry required” in the first account field.)

Paper For Above instruction

Introduction

The issuance of stock is a fundamental aspect of corporate finance, reflecting a company's strategy to raise capital from investors. This paper examines two scenarios concerning the recording of stock issuance transactions for Clothing Frontiers, which began operations on January 1. The first scenario considers the company issuing no-par common stock, while the second involves a par or stated value of $1. The analysis provides detailed journal entries for each situation, emphasizing accounting principles and standard practices.

Scenario 1: No-Par Common Stock

In the case of no-par common stock, the company does not assign a par value to the shares, and the entire amount received from investors is recorded as contributed capital. When Clothing Frontiers issues 700 shares at $47 per share on January 1, the total proceeds amount to:

700 shares x $47 = $32,900.

The journal entry to record this transaction is:

Debit Cash $32,900


Credit Common Stock $32,900

Similarly, on April 1, when the company issues 110 shares at $51 per share, the total proceeds are:

110 shares x $51 = $5,610.

The journal entry is:

Debit Cash $5,610


Credit Common Stock $5,610

This straightforward approach reflects the absence of a par value, and the entire proceeds are credited directly to the Common Stock account.

Scenario 2: $1 Par or Stated Value Common Stock

When the stock has a par or stated value of $1, each share issued requires splitting the proceeds between the Par Value account and Additional Paid-In Capital (APIC). For the initial issuance:

- Total proceeds: 700 shares x $47 = $32,900.

- Par value per share: $1.

- Total par value: 700 shares x $1 = $700.

- Additional paid-in capital: $32,900 - $700 = $32,200.

The journal entry on January 1 is:

Debit Cash $32,900


Credit Common Stock – Par Value $700


Credit Additional Paid-In Capital $32,200

On April 1, with issuance of 110 shares at $51 per share:

- Total proceeds: 110 x $51 = $5,610.

- Par value: 110 x $1 = $110.

- Additional paid-in capital: $5,610 - $110 = $5,500.

The journal entry on April 1 is:

Debit Cash $5,610


Credit Common Stock – Par Value $110


Credit Additional Paid-In Capital $5,500

These entries reflect correct accounting treatment for stock issuance with a specified par or stated value, distributing proceeds accordingly.

Conclusion

The method of recording stock issuance transactions depends fundamentally on the company's stock classification, whether no-par or par/stated value. Accurate journal entries ensure transparency and proper reporting of stockholders’ equity. For no-par stock, the entire proceeds are credited to the stock account, while for par value stocks, proceeds are split between common stock and additional paid-in capital. These practices align with Generally Accepted Accounting Principles (GAAP) and ensure consistency in financial statements.

References

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