Home › ACCA › Financial Accounting › Share Capital and Dividends › Why is no journal entry recorded when a corporat…
Why is no journal entry recorded when a corporation's board authorises a number of shares?
AAuthorisation is only permission to sell, so no transaction has occurred
BThe shares are recorded later at their eventual market value instead
CAuthorised shares are always equal to the shares already issued
DThe board lacks the legal power to change share counts
Answer & Solution
Correct answer: A. Authorisation is only permission to sell, so no transaction has occurred
1. A journal entry requires an actual transaction that changes account balances.
2. Authorisation merely grants permission to issue up to a maximum, like a credit limit.
3. No cash is received and no shares change hands at authorisation.
4. With no transaction, there is nothing to record, so no entry is made.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §6.2 "Corporations and Stockholders' Equity", p.246_
Related questions
A corporation begins the period with retained earnings of $60,000, earns net income of $40Which statement correctly distinguishes a stock split from a stock dividend?Following a 4-for-1 stock split on 10,000 shares with a $20 market price, what happens to A corporation has 10,000 shares outstanding at $16 par with a market price of $20, then deWhat overall effect does a stock dividend have on a corporation's equity section?What is recorded on the distribution date of a previously declared stock dividend?On declaration of a 2% stock dividend on 21,000 ordinary shares of $10 par (fair value $15A corporation declares a 2% stock dividend on 21,000 ordinary shares of $10 par value when