Hello and welcome everyone to our lesson today. Today we are going to switch gears and talk about equity. And for this lesson I'm just going to start with a simple example or exercise that illustrates the simple transactions of issuing stock. Whether it is issuing common stock or issuing preferred stock as the two types of stocks that we have focused on. So let's get started. Presented below is information related to Universal Company. The company is granted a charter that authorizes issuance of 15,000 shares of $100 par value preferred stocks and 40,000 shares of $5 par value common stocks. That actually just granting the charter how many shares can be issued of each class, and actually the par value per each stock, each type. Obviously there's no Journal entry once I get the granted or the charter being granted, so you're not going to find an entry for number 1. Number 2, 10,000 shares of common stock are issued to the founders of the corporation for land valued by the board of directors 200,000. This is obviously issuance for property, it's not for cash. So we will value those shares based on the par value of the land and that will be inferred the market value of those shares. Number 3, 4,000 shares of preferred stock are sold for cash at $120 per share. As we will do with the issuance, whenever we have issuance, we actually distinguish between what is the par and whatever in excess of par. We put the par value in a common stock or the preferred depending on the designated whatever the stock is. And whatever I received in excess an over and above the par value will be credited to an account called paid-in capital in the name of whatever stock paid in capital, common stock or paid in capitol preferred stock. Number 4, that force transaction, the company issues 200 shares of common stock to its accountants for costs associated with starting the company for professional services. At that time, the common stock was selling at $30 per share. Again, that's how I will infer the value of those services. And actually, once you take the 200 shares times the 30, then I actually paid those accounts at the value of the services that I receive is simply $6,000. Out of the $6,000 I would issue 200 shares times the par value, which is the $5 that will be in credited to the common stock and the extra will be credit to additional paid-in captain. Let's take a look, here you go. As I said in number one, there's no Journal entry because I was just granted a charter, so there is no Journal entry. With respect to the land, the land was valued at 20,0000, I actually issued 10,000 shares. I took the 10,000, shares times the $5 par value per share, and whatever exceeded that was credit to additional paid-in capital in excess apart. By the way, I'm going to use additional Paid-In Capital I will use PIC. All those I'm going to use synonyms for the same thing, whatever the PIC is, the additional portion for PIC, common stock or PIC preferred stock. Again with number 3, with the issuance of the 4,000 that par the preferred stock, here you go. The 4,000 shares times the 100, which is the par value, that's the 400,000, whatever exceeded was credited. Whatever I collected in excess of the par value was created to PIC preferred stock. Finally, with the services, the professional services that were received by the accountants I actually will value those as 6,000, as I mentioned before. The common stock will be credited for 200 shares times the par value per share, and whatever exceeds the par value will be credited to the paid-in capital in excess of par common stock. As I said, the notation always either common stock or preferred stock whatever that PIC belong to. There will be several PIC accounts that we will be exposed to do in the future, but for now we have at least two main accounts for the PIC or the additional paid-in capital. One belongs to the common stock and the other one belongs to the perspective. So that is just a starting point for focusing on the process of issuing stock for now. Thank you very much.
