“Realize that low times are understandable, often inevitable, and sometimes even

2.4 Issuance of Share Capital helpful.” –Robert Schuller

“I choose to maintain a cheerful disposition even in the most trying circumstances.

When a corporation sells some of its authorized shares, the shares are described as "issued." The
number of shares that can be issued is limited to the total authorized shares and the entries to be
recorded for the issuance of shares will depend on the method of recording the authorized shares.

2.4.1 Authorization to Issue Capital Stock

1. Memorandum entry – the usual method of recording the authorization that identifies
the number of authorized shares, the par or stated value per share and preference
provision in case of preference share

2. Journal entry - a formal entry is made for the authorization as follows:

Unissued Share Capital xxx
Authorized Share Capital xxx

 The Unissued Capital Stock account is credited for the par value of the stock
issued. This account is a deduction from the Authorized Share Capital account
in the shareholders’ equity section of the statement of financial position.

2.4.2 Issuance of Share Capital “Commit yourself to developing a strong character.” –Jim Dornan/John Maxwell
“I choose to operate with complete honesty, integrity, and sincerity.”
A. Capital stock issued for cash.
1. When par value share is issued, the Share Capital account (that is, Ordinary Share or
Preference Share) is credited for the legal capital (par value).

2. When a corporation issues no-par share with a stated value, the total stated value is
recorded in the Share Capital account.

3. When the amount of cash received from the sale of share is greater than the par or
stated value, the excess is recorded separately as a credit to a share premium.

Illustration 1: GMA Corp. is authorized to issue P1,000,000 ordinary shares divided

into 10,000 shares, with a par value of P100 per share. The diversified company issued
on cash basis 2,000 shares at par. The share issuance entry will be:
Cash 200,000
Ordinary Shares 200,000

The amount of P200,000 invested in the corporation is called paid-in capital or

contributed capital. The credit to Ordinary Shares increases the share capital of the
corporation.

Illustration 2: GMA Corp. is authorized to issue P1,000,000 ordinary shares divided

into 10,000 shares, with a par value of P100 per share. 2,000 shares were sold at P 150
per share. The share issuance entry will be:
Cash 300,000
Ordinary Shares 200,000
Share Premium 100,000

The excess of P 100,000 is not a gain. The company can neither earn a profit nor incur
loss when it issues shares to or acquires shares from its shareholders.

1
 Illustration 3: Suppose that GMA Corp.’s no-par ordinary shares have a stated value
of P20. The company issued 5,000 shares at P25 per share. The entry will be:
Cash 125,000
Ordinary Shares 125,000

If the no-par stock has a stated value, the excess proceeds over stated value – in this
case, P5 per share, may alternatively be credited to share premium.
Cash 125,000
Ordinary Shares 100,000
Share Premium 25,000
B. Subscription of Shares
There are times when a corporation sells its shares directly to investors on a subscription
basis. The subscription contract is a legally binding contract which provides for the
number of shares subscribed, the subscription price, the terms of payment and other
conditions of the transaction. A subscriber becomes a shareholder upon subscription but
the stock certificates evidencing ownership over shares of stocks are not issued until the
full collection of the subscription.

Illustration: Assume that 5,000 shares of P10 par value ordinary share of GMA Corp.
were sold on subscription at P12 per share on Sept. 1, 2018 to Ms. San Diego.
Subscription installments of P24,000 and P36,000 will be due on Sept. 16 and 30,
respectively. The related entries follow:

Subscription Receivable 60,000

Subscribed Ordinary Shares* 50,000
Share Premium 10,000
To record subscriptions above par.

Cash 24,000
Subscription Receivable 24,000
To record initial installment
Cash 36,000
Subscriptions Receivable 36,000
To record final installment

Subscribed Ordinary Shares* 50,000

Ordinary Shares 50,000
To record issuance of stock certificates.
*The subscribed ordinary shares account represents the par value of the subscribed shares.
 Subscriptions Receivable is a shareholders’ equity account.
 It is presented in the statement of financial position as a deduction from the related
subscribed ordinary shares; however, when it is collectible within one year, this
may be shown as a current asset.
 It is debited for the total proceeds of the subscriptions to the ordinary shares and
credited for the collections on the subscriptions.

B. Capital stock issued for non-cash.

If share capital is issued for a non-cash consideration such as tangible property, intangible
property and services, the proceeds is recorded at an amount equal to the following in the
order of priority:
1. Fair market value of the non-cash consideration received
2. Fair market value of the share capital issued
3. Par or stated value of the share capital issued

2
 To illustrate, assume GMA Corp. is a publicly held corporation. Its P5 par value is
actively traded at P8 per share. The company issues 10,000 shares of stock to acquire
land recently advertised for sale at P 90,000. The most clearly evident value is the fair
market value of the consideration given, which is P 80,000. The entry will be:
Land 80,000
Ordinary Shares 50,000
Share Premium 30,000
To record issuance of 10,000 shares of stock in exchange for land.

Note:
Kindly check out your study planner. To indicate that you have finished grasping the key points at
this part of the module, tick on the checklist for Issuance of Share Capital. This is a form of self -
assessment so you can personally monitor your learning progress. 

Self-Check
ORALLER Corporation was organized and authorized by the Securities and Exchange Commission to
issue 50,000 ordinary shares with a par value of P100,000 per share on July 30 2019.

The following transactions transpired during the month of August 2019:

August
1 Subscriptions at par were received as follows:
3,000 shares subscribed by Mr. H
4,500 shares subscribed by Mr. B
2,500 shares subscribed by Mr. C
500 shares subscribed by Mr. D
500 shares subscribed by Mr. E
11,000 total shares
1 Mr. H paid his subscription in full and the corresponding stock certificate issued to him.
1 Collected 50% of the subscriptions of Mr. B and Mr. C.
10 Additional subscriptions:
4,000 shares was subscribed by Mr. F at P110 per share, collectible in two equal
installments, August 15th and August 31 and 3,500 shares was subscribed by Mr. G at
P110.00 per share, 1/5 of which were paid upon subscription.
12 Mr. C has no cash and instead gave the following assets at fair market values which are
accepted by the corporation in full settlement of his subscription balance of P125,000.
FMV Cost
Furniture and Fixtures P 40,000 P60,000
Office Equipment 55,000 50,000
Merchandise Inventory 30,000 25,000
P125,000 P135,000
The stock certificate for Mr. C was issued.
15 Mr. F paid his first installment due today.
17 Mr. J purchased and paid in full for 3,000 shares at P108.00 per share and the
corresponding stock certificate was issued.
21 Atty. K set his statement of account for his legal services amounting P15,000. The
corporation paid him in the form of 120 shares of stock. A certificate of stock for 120 shares
was issued to him.
29 A factory machine with a fair value of P870,000 was purchased from Miss H. Payment was
made by issuing a stock certificate for 8,000 shares.
31 Collected form Mr. F his second and last installment due today. Issued the stock
certificate.

Using the Memorandum Entry Method, prepare: Journal entries to record above transactions (with
explanations) and the Shareholders’ Equity Section of the Statement of Financial Position.
Refer to the Answer Key.

3
 ANSWERS KEY

Unit 2. Accounting for Corporation

ORALLER CORPORATION

2019

July 30 Memorandum Entry

On this date, Oraller Corporation received its charter from the Securities and Exchange
Commission and was authorized to issue 50,000 shares of Ordinary Stock with a par
value of P100 per share.

Aug. 1 Subscription Receivable P1,100,000

Subscribed Share Capital P1,100,000
Received subscription at par value from the following subscribers:
H 3,000 shares @ P100 = P 300,000
B 4,500 shares @ P100 = P 450,000
C 2,500 shares @ P100 = P 250,000
D 500 shares @ P100 = P 50,000
E 500 shares @ P100 = P 50,000
Total 11,000 shares @ P100 = P1,100,000

1 Cash 300,000
Subscription Receivable 300,000
Full payment of 3,000 shares of Mr. H.

1 Subscribed share capital 300,000

Share Capital 300,000
Issuance of stock certificate to Mr. H.

1 Cash 350,000
Subscription Receivable 350,000
50% payment by Mr. B and C
Mr. B 4,500 shares x P100/2 = P225,000
Mr. C 2,500 shares x P100/2 = P125,000
Total P350,000

10 Subscription Receivable 440,000

Subscribed Share Capital 400,000
Share Premium 40,000
Received subscription for 4,000 shares at P110 collectible in two equal
instalments, August 15th and August 31st, by Mr. F.

4
10 Cash 77,000
Subscription Receivable 308,000
Subscribed Share Capital 350,000
Share Premium 35,000
Received subscription for 3,500 shares at P110 with 1/5 down payment
by Mr. G.

12 Furniture and Fixtures 40,000

Office Equipment 55,000
Merchandise Inventory 30,000
Subscription Receivable 125,000
Received the assets as full settlement of Mr. C’s subscription balance of
P125,000.

12 Subscribed Share Capital 250,000

Share Capital 250,000
Issued stock certificate to Mr. C for full payment.

15 Cash 220,000
Subscription Receivable 220,000
Collected the first instalment payment of Mr. F.

17 Cash 324,000
Share Capital 300,000
Share Premium 24,000

21 Organization Expenses 15,000

Share Capital 12,000
Share Premium 3,000
Issued 120 shares at par value to Atty. K for services rendered.

29 Factory Machine 870,000

Share Capital 800,000
Share Premium 70,000
Issued 8,000 share at par value to Miss H.

31 Cash 220,000
Subscription Receivable 220,000
Final payment from F.

31 Subscribed Share Capital 400,000

Share Capital 400,000

Issued 4,000 shares to F.

5
 Shareholders’ Equity
Share Capital:
Share Capital, authorized
50,000 ordinary shares par
value P100, issued 20,620
shares P2,062,000
Subscribed share capital 9,000 shares P900,000
Less–Subscription Receivable 633,000 267,000
Total P2,329,000
Reserves:
Share Premium 172,000
Retained Earnings, beginning P 0
Organizational Expenses (15,000)
Deficit (15,000)
Total Shareholders’ Equity P2,486,000