How to Adjust Entries of Increased Market Value of Outstanding Stock
The market value of outstanding stock is the current quoted price at which investors buy or sell a share, and it is different from book value because it reflects the future growth potential of the company. Outstanding stock is a company's publicly issued and restricted stock. Insiders and employees of the company are the owners of the company's restricted stock. The sale of restricted stock requires special permission from the Securities and Exchange Commission. The market value of outstanding stock increases when the company issues additional stock or when holders of stock options execute the right to buy additional stock from the unissued pool of the company's authorized share capital.
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Instructions
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Multiply the total number of outstanding shares by the current market value per share to determine the total market value of the outstanding stock. Subtract the book value of the outstanding stock as quoted in the balance sheet from the total market value of the stock and the difference will be the total amount of increase in market value of the stock.
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Write a journal voucher debiting the authorized share capital account and crediting the capital account in the balance sheet with the total amount of increase in the market value of the outstanding stock.
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Seek top management's approval for the journal voucher and post it in the general ledger. Ensure that the amounts debited to the share capital account equal the credit posted in the capital account. This entry will effectively have adjusted the increase of value in the outstanding stock in your books of accounts.
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Tips & Warnings
Always reference the company's remaining portion of authorized share capital when calculating the market value of the outstanding stock to facilitate tracking of any stock options redeemed by holders.
Do not include any shares purchased by the company in the outstanding stock because they are not subject to market valuation.
