Question: Over the years, one residual effect from the requirement to include a par value on stock certificates has
remained. This figure is still used in reporting the issuance of capital stock. Thus, if Kellogg sells one share for
cash of $46.00 (the approximate value on the New York Stock Exchange during the summer of 2009), the common
stock account is increased but only by the $0.25 par value. Kellogg receives $46.00 but the par value is only
$0.25. How can this journal entry balance?
How does a company report the issuance of a share of common stock for more than par value?
Answer: A potential stockholder contributes assets to a company in order to obtain an ownership interest. In
accounting, this conveyance is not viewed as an exchange. It is fundamentally different from selling inventory
or a piece of land to an outside party. Instead, the contribution of monetary capital is an expansion of both the
company and its ownership. As a result, no gain, loss, or other income effect is ever reported by an organization
as a result of transactions occurring in its own stock. An investor is merely transferring assets to a corporation to
be allowed to join its ownership.