On 15 March, Prairie Sky Software issues 50,000 no-par common shares to the public at 18.00 per share. Issue costs of 25,000 are deducted by the underwriter before the net proceeds are deposited. The company’s policy is to net issue costs against share capital. Record the issue.
On 15 March, Prairie Sky Software issues 50,000 no-par common shares to the public at 18.00 per share. Issue costs of 25,000 are deducted by the underwriter before the net proceeds are deposited. The company’s policy is to net issue costs against share capital. Record the issue.
Answer
Dr Cash 875000; Cr Common Shares 875000
Accounts - Cash - Common Shares - Share Issue Costs Expense - Contributed Surplus - Retained Earnings - Preferred Shares Cash received is 50,000 × 18 − 25,000 = 875,000, and that net amount is share capital. The trap is crediting Common Shares for the gross 900,000 and debiting Share Issue Costs Expense for $25,000: issue costs are a cost of raising capital and reduce the capital raised, not the year’s income. Contributed Surplus is for par-value shares; there is no par here.
Lyryx IFA Vol 2 §18.1–18.2; Lyryx Intro FA §10.1–10.2