QUESTIONS ON THE ISSUANCE OF CAPITAL STOCK.

CAPITAL stock; CAPITAL stock laws; STOCKHOLDERS equity; CAPITAL contributions; GOODWILL (Commerce); ACCOUNTING

This article presents answers to several questions on the accounting for capital stock. A question was raised on the expenses incurred in public sale of capital stock. It was noted that direct costs of obtaining capital by issuing stock should he deducted from the related proceeds and the net amount recorded as contributed stockholders' equity. Assuming no legal prohibitions, issue costs should be deducted from capital stock or capital in excess of par or stated value. Such costs should be limited to the direct cost of issuing the security. Thus, there should be no allocation of officers' salaries, and care should be taken that legal and accounting fees do not include any that are unrelated to the issuance. Another question was related to the stock issued for no consideration. This is primarily a legal rather than an accounting question, and it would be advisable to obtain legal advice on the effect of such issuance. If such stock was legally issued, the appropriate entry would show the offset as a discount on capital stock issued. Goodwill should be recognized only when acquired, in accordance with paragraphs 24-26 of Accounting Principles Board Opinion number 17, Intangible Assets. INSET: STILL LOOKING FOR THE ANSWER TO YOUR PRACTICE QUESTION?.