How do I add common stocks to the cash balance on a balance sheet?

Question

I am currently working on my Accounting homework and I cannot figure out this answer. I have everything figured out except for the correct cash balance on the balance sheet. A side not says that 800,000 shares of no par common stock was issued for the company, and out of those 800,000, 400,000 shares have been issued and are outstanding. The current cash balance is 103,000. I am not sure what to do with the stock information. Thank you.

Answer 1

Baylee, If my answer doesn’t make sense, please internal message me. With the limited information provided – here is my insight.

If 400,000 shares have been issued and outstanding and the current cash balance (with no other references to other transactions or a beginning balance before the $103,000 current balance) hints that the $103,000 was raised from the sale of the 400,000 issued & outstanding shares. Each share was sold for $3.88 each or (400,000 / $103,000 = $3.88 each). 

Record the sale/issuance as this:

Cash                                                                                                       $103,000

Common Stock (400,000 shares issued & outstanding; 800,000 authorized)           $103,000

If other information exists, such as the beginning cash balance was $3,000 and the balance after the initial stock issuance was $103,000; then it is safe to assume that only $100,000 was received from the stock issuance. Meaning $103,000 present balance less $3000 beginning balance provides for a “backed into” answer of the difference of $100,000 increase is attributable to the stock issuance (all other facts having been disclosed and non-relevant).

With the new information supporting only $100,000 was attributable to the 400,000 share issuance, the price received per share of stock becomes $4.00 per share (400,000/$100,000) – not the prior assumption of $3.88 per share.

Record the sale/issuance as this:

Cash                                                                                                                 $100,000

         Common Stock                                                                                       $100,000

Hope this helps,

John