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Lesson 6 of 9Partnerships and Corporations
Unit 3 · Lesson 6 of 9

Issuing, Subscribing and Repurchasing Shares

No-par shares are recorded at the full amount received (or the fair value of non-cash assets), subscriptions use a receivable and a Shares Subscribed account until paid in full, and repurchased shares come off the share account at their average issue price.

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Key things to remember

  1. 1No-par shares: debit the asset received, credit the share account (Common Shares or Preferred Shares) for the full amount.
  2. 2Shares issued for non-cash assets are recorded at fair value, using whichever of the asset or the shares can be valued more reliably.
  3. 3Subscriptions: Dr Subscriptions Receivable, Cr Common Shares Subscribed; collect instalments; when fully paid, Dr Common Shares Subscribed, Cr Common Shares.
  4. 4Average issue price a repurchase removes shares at this average.
  5. 5Pay less than average: credit Contributed Surplus. Pay more: debit Contributed Surplus (up to its balance), then Retained Earnings.
  6. 6Repurchases never create a gain or loss on the income statement.

In a proprietorship, every dollar the owner puts in goes to one Capital account, and so does all the profit. A corporation keeps these apart on purpose. Money that shareholders invest is share capital (contributed capital). Profit the corporation has earned and kept is retained earnings. The split matters because corporate law protects share capital: it is the cushion creditors rely on, so it cannot simply be paid out as dividends. This lesson follows Maple Ridge Outfitters Ltd. through a year of share transactions and shows exactly which accounts each one touches.

Northshore Foods Inc.Balance Sheet (partial)December 31, 2026Shareholders' EquityShare capitalPreferred shares, $5 cumulative,10 000 authorized, 4 000 issued200 000Common shares, unlimited numberauthorized, 50 000 issued500 000Total share capital700 000Retained earnings340 000Total shareholders' equity1 040 000Chen & Diaz DesignBalance Sheet (partial)December 31, 2026Partners' EquityChen, Capital45 000Diaz, Capital25 000Total partners' equity70 000No share capital and noretained earnings: onecapital account per partner.CorporationContributed capital (share capital, what shareholderspaid in) is kept apart from earned capital (retainedearnings). Dividends reduce retained earnings.Ontario and federal corporations issue no-par shares.PartnershipInvestments and each partner'sshare of net income add tocapital; drawings and lossesreduce it.
Fig 1Share capital (by class), contributed surplus and retained earnings: the three parts of shareholders' equity these entries build.

Issuing shares for cash

Because Canadian shares have no par value, the entry is simple: debit the asset received and credit the share account for the full amount. On Jan. 1, 2026, Maple Ridge already had 25,000 common shares issued for $250,000. On Jan. 10 it issued 5,000 more common shares at $10 each and 2,000 preferred shares at $50 each.

DateAccountDebitCredit
2026 Jan. 10Cash$50,000
Common Shares$50,000
Issued 5,000 common shares at $10 for cash
Jan. 10Cash$100,000
Preferred Shares$100,000
Issued 2,000 $4 preferred shares at $50 for cash
Each class of shares gets its own account. Common Shares is now $300,000 for 30,000 shares.
VideoRecords an issue of common shares for cash; the first part uses no-par shares, the Canadian practice in this course, so the full amount is credited to Common Shares.Watch on YouTube

Issuing shares for non-cash assets

Sometimes a corporation gives shares instead of cash, for example to buy land or equipment, or to pay a lawyer for incorporation work. The transaction is recorded at fair value: the value of whatever can be measured more reliably, either the asset received (often from an independent appraisal) or the shares given (if they trade actively). For a private company whose shares do not trade, that is usually the appraised value of the asset. On Mar. 1, Maple Ridge issued 5,000 common shares to acquire a lot next to its warehouse, appraised at $60,000.

DateAccountDebitCredit
2026 Mar. 1Land$60,000
Common Shares$60,000
Issued 5,000 common shares for land at appraised fair value
The shares were effectively issued at $12 each ($60,000 / 5,000). Common Shares is now $360,000 for 35,000 shares.

Share subscriptions: buying now, paying later

Under a subscription, an investor signs a contract to buy shares at a set price and pay in instalments. The corporation has a legal claim on the investor (Subscriptions Receivable), but it does not issue the shares until they are fully paid. Until then, the promised shares sit in an equity account called Common Shares Subscribed. On Apr. 1, investors subscribed for 15,000 common shares at $12 ($180,000), paying 25% down. They paid the balance on June 30. If statements are prepared in between, Common Shares Subscribed is reported in shareholders' equity under share capital, and Subscriptions Receivable is commonly shown as a current asset (some standards prefer to deduct it from shareholders' equity instead, so equity is not counted before the cash arrives). Either way, subscribed shares are not issued, and do not count as outstanding, until they are paid in full.

DateAccountDebitCredit
2026 Apr. 1Subscriptions Receivable: Common$180,000
Common Shares Subscribed$180,000
Subscriptions for 15,000 common shares at $12
Apr. 1Cash$45,000
Subscriptions Receivable: Common$45,000
Collected 25% down payment
June 30Cash$135,000
Subscriptions Receivable: Common$135,000
Collected balance of subscriptions
June 30Common Shares Subscribed$180,000
Common Shares$180,000
Issued 15,000 fully paid common shares
After June 30 Subscriptions Receivable and Common Shares Subscribed are both zero. Common Shares is $540,000 for 50,000 shares.

Repurchasing shares at the average price

A corporation may buy back (repurchase) its own shares, for example to return spare cash to shareholders, and in Canada it normally cancels them. Because no-par shares have no face value, each share is treated as carrying the average issue price of its class: the balance of the share account divided by the shares issued. That average comes off the share account. If the corporation pays less than average, the difference is a gain to the continuing shareholders and is credited to Contributed Surplus. If it pays more, the excess is charged first to any contributed surplus from earlier repurchases of the same class, and then to Retained Earnings. No gain or loss ever goes on the income statement, because a company cannot earn income by trading with its own owners.

Average issue price of Maple Ridge's common shares on Sept. 15, 2026
DateAccountDebitCredit
2026 Sept. 15Common Shares (2,000 x $10.80)$21,600
Cash (2,000 x $9.50)$19,000
Contributed Surplus: Reacquisition of Shares$2,600
Repurchased and cancelled 2,000 common shares below average
Nov. 20Common Shares (1,000 x $10.80)$10,800
Contributed Surplus: Reacquisition of Shares$1,200
Cash (1,000 x $12)$12,000
Repurchased and cancelled 1,000 common shares above average
The Nov. 20 excess of $1,200 is covered by the $2,600 of contributed surplus, leaving $1,400. Had the excess been larger, the rest would be debited to Retained Earnings.
The order of charges when paying more than average
1. Debit the share account at the average price. 2. Debit Contributed Surplus from earlier repurchases of that class, but only up to its balance. 3. Debit Retained Earnings for anything still left. Buying back at the average leaves the average unchanged: after both repurchases Maple Ridge has 47,000 common shares and a Common Shares balance of $507,600, still $10.80 each.
VideoRepurchases and cancels no-par common shares once below and once above the average issue price. Stop after the no-par part; the par-value part is not used in this course.Watch on YouTube

Worked examples

Reveal one step at a time and try to beat it to the next line.

Example 1
On Aug. 1, 2026, investors subscribe for 8,000 common shares of Tundra Tech Ltd. at $15, paying 40% down. They pay the balance on Oct. 31, and the shares are issued. Record all entries.
Example 2
Tundra Tech Ltd. has 80,000 common shares issued with a Common Shares balance of $960,000, and $3,000 of contributed surplus from an earlier repurchase of common shares. On Dec. 5, 2026, it repurchases and cancels 5,000 common shares for $14.50 each. Record the entry.
Example 3
A private corporation whose shares do not trade issues 3,000 common shares to acquire a delivery truck. The seller asked $52,000, but an independent appraisal values the truck at $45,000. Record the June 1 entry and state the effective price per share.
Example 4
Explain why Maple Ridge credited $2,600 to Contributed Surplus on Sept. 15 instead of recording a $2,600 gain on the income statement.

Where marks get lost

  • Crediting Cash instead of Common Shares Subscribed when a subscription is signed. No cash moves when the contract is signed; the corporation records a receivable.
  • Crediting Common Shares before the subscription is fully paid. Shares are issued only when the last instalment is collected.
  • Removing repurchased shares at the price paid instead of the average issue price, which leaves the wrong balance in Common Shares.
  • Recording a repurchase above average as a loss on the income statement, or debiting Retained Earnings before using up the available contributed surplus.
  • Recording a share issue for land at the seller's asking price or the vendor's original cost instead of fair value.

Flashcards 7

Entry to issue no-par common shares for cash
Shares issued for a non-cash asset are recorded at...
Subscriptions Receivable
Common Shares Subscribed
+ 3 more

Practice

1
A CBCA corporation issues 10,000 common shares for $18 cash each. Which entry is correct?
2
A corporation's Common Shares account is $1,320,000 for 120,000 shares issued. What is the average issue price per share, to the nearest cent?
$
3
Using the $11.00 average above, the corporation repurchases 4,000 shares for $9.75 each. How much is credited to Contributed Surplus, to the nearest dollar?
$
4
A corporation's common shares average $8.00. It has $1,500 of contributed surplus from earlier repurchases. It repurchases 6,000 shares at $9.20. How much is debited to Retained Earnings, to the nearest dollar?
$
5
Put the entries for a share subscription in the order they are recorded.
  1. 1Dr Cash; Cr Subscriptions Receivable (down payment)
  2. 2Dr Common Shares Subscribed; Cr Common Shares
  3. 3Dr Cash; Cr Subscriptions Receivable (final instalment)
  4. 4Dr Subscriptions Receivable; Cr Common Shares Subscribed
6
A corporation issues 2,000 common shares for equipment. The shares trade actively at $24 on the TSX; the equipment has no reliable market value. At what amount is the equipment recorded?
7
Match each account to where it is reported.
Common Shares
Common Shares Subscribed
Contributed Surplus
Subscriptions Receivable
8
When a corporation repurchases shares for more than their average issue price and has no contributed surplus from earlier repurchases, which account is debited for the excess?

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