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Chapter 7.4® - Authorized Share Capital, Journal Entries for Issuance of Non Par Value Shares, Journal Entries for Shares Sold on Subscription Basis

This represents the maximum number of shares that can be legally issued. In Canada, under the Canada Business Corporation Act, a corporation can issue unlimited number of shares. Also, the corporation may choose to place a limit on authorized shares. This limit must be stated in the articles of incorporation, which can be changed at the later date.

(In Millions $)

Shareholder's Equity 2008 2007
Capital Stock    
- Preferred $1,047 $1,020
- Common $2,000 $3,000
Retained Earnings $5,032 $4,100
Ending Shareholder's Equity $8,079 $8,120

Accounting For Share Capital at Issuance:

If a corporation has more than one class of share, separate accounts should be maintained for each class. If there is only one share class, an account title ‘share capital’ usually is used.

Non-Par Value Shares Issues for Cash:

When share are issued, a share specifying the number of shares represented, is prepared for each shareholder..

For example, 1,000 common shares were issued at no-par for cash $10.20 per share would be recorded as follows:

December 31st, 2009

Account Name

Dr. Cash   $10,200  
Cr. Common Shares   $10,200
To record the issuance of 1000 common no par value shares @ $10.20 each.


We debited cash by $10,200 (1,000 shares X $10.20) and credited the Common Share account by $10,200. Remember the concept i.e. (Debit and Credit must be equal).

Shares Sold on a Subscription Basis

Prospective shareholders sign a contract to purchase a specified number of shares on credit. The payment gets due at one or more specified future dates. These contractual agreements are known as ‘stock subscriptions’, and shares involved are called subscribed share capital. The shares are not typically issued until the entire subscription amount is received.

Lets assume that 1,200 no-par common shares are subscribed for at $10 by Mr. A.

December 31st, 2009

Account Name

Dr. Stock Subscription Receivable   $12,000  
Cr. Common Shares   $12,000
To record the issuance of 1200 common shares @ $10.20 each (on a subscription basis).

The receivable will be paid in four $3,000 instalments. Now, assume that after the 4th instalment has been paid and the entry of which will be as:

December 31st, 2010

Account Name

Dr. Cash   $12,000  
Cr. Stock Subscription Receivable   $12,000
To record the collection of cash for 1200 shares sold on a subscription basis.

Payment Not Received:

If a subscriber unable to pay the remaining instalments, some problems may arise. In this scenario, the corporation has to decide whether;

1) return all payment to the subscriber;

2) issue the shares for payment already received; or

3) keep the all payment

The above two options are in favor to the subscriber where no loss is falling on the shoulders of the subscriber. But on the other hand, option three has disadvantages where corporation is keeping all the money and paying no consideration. The third option is not generally enforceable.

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