Share Issue Costs Journal Entry

Share issue costs are the costs that a company needs to spend to list the share equity on the capital market.

When a company goes public, it is usually required to list on a stock exchange in order to allow its shares to be traded. This listing process typically involves filing a prospectus with the exchange, which provides potential investors with information about the company.

The listing requirements may be different depending on the exchange, but they generally include things like minimum share price, market capitalization, and the minimum number of shares. In some cases, a company may need to raise additional capital in order to meet these requirements.

For example, if a company’s shares are not traded on a big exchange, it may need to list on a smaller exchange in order to raise the necessary funds. Listing on a stock exchange can provide many benefits for a company, including increased visibility and access to capital. However, it is important to consider the costs and benefits of listing before making a decision.

When a company decides to issue new common stock, there are a few important factors to consider. First, the company must determine the number of shares to be issued and the price per share. The number of shares should be based on the amount of capital the company needs to raise, while the price per share will be determined by a variety of factors such as the current market conditions and the company’s financial stability.

Once these decisions are made, the company will need to file paperwork with the Securities and Exchange Commission and pay any associated fees. Finally, the company will need to arrange for the shares to be listed on a stock exchange. The entire process can be complex and time-consuming, but it is essential in order to ensure that the new shares are properly valued and traded.

Journal Entry for Share Issue Cost

The company will receive cash from the issue of shares into the capital market. The company will record cash increases and the common stock which is the equity section on the balance sheet.

Most of the time, the common stock will be issued at a price that is higher than the par value, it will create the additional paid-in capital which is the equity item as well.

The journal entry is debiting cash and credit common stock, additional paid-in capital.

Account Debit Credit
Cash 000
Common Stock 000
Additional Paid-In Capital 000

In order to issue the share to the market, the company needs to pay some costs which include audit fees, legal fees, SEC register fees, and so on. The company needs to pay cash to the relevant parties.

The share issue cost will reduce the additional paid-in capital on the equity section of the balance sheet. It only applies to the cost which is necessary to bring the common stock to the market.

The journal entry is debiting additional paid-in capital and credit cash paid.

Account Debit Credit
Additional Paid-In Capital 000
Cash 000

Example

Company ABC has issued 1,000 common stock to the capital market. The common stock has a par value of $1 and they are issued for $ 100 per share. The company has spent $ 25,000 on the issuing costs. Please prepare journal entry for share issuing cost.

The company has received cash $ 100,000 ($ 100 per share x 1,000 shares) from issuing new common stock to the market.

The journal entry is debiting cash $ 100,000 and credit common stock $ 1,000, Additional Paid-in Capital $ 99,000.

Account Debit Credit
Cash 100,000
Common Stock 1,000
Additional Paid-In Capital 99,000

The company has spent $ 25,000 on the share issuing cost, so it needs to reduce the additional paid-in capital.

The journal entry is debiting additional paid-in capital $ 25,000 and credit cash $ 25,000.

Account Debit Credit
Additional Paid-In Capital 25,000
Cash 25,000