Stockholders' Equity

AMIS 211 CHAPTER 11 - LECTURE NOTES I.

STOCKHOLDERS' EQUITY 1.

Paid-In Capital - Investments contributed by shareholders. A. B. C. D.

2. II.

Stock Issuance Sale of Treasury Stock Donated Capital Redemption of Corporation's Own Stock

Retained Earnings - Earnings retained in the business.

TERMS A.

Capital Stock - Shares of ownership in the corporation.

B.

Stock Outstanding - Stock held by shareholders other than the corporation itself.

C.

Par Value - Arbitrary monetary value assigned to shares of stock and is printed on the stock certificate.

D.

No-Par Stock - Stock issued without a par value.

E.

Legal Capital - The minimum contribution by shareholders that must remain in the corporation to protect creditors.

F.

Common Stock - When a corporation has only one class of stock, it is called Common Stock.

G.

Preferred Stock - Class of stock which has preferential rights. (1) (2)

Preferential dividend distribution Preferential liquidation rights

Types of Preferred Stock: (1) Participating Preferred (2) Nonparticipating Preferred (3) Cumulative Preferred (4) Noncumulative Preferred H.

Treasury Stock - Previously issued stock that is repurchased by the issuing corporation.

I.

Dividends - Distribution of earnings to shareholders. (1) (2) (3)

J.

III.

Cash Property Stock

Stock Splits - Reduction of par value of common stock and the issuance of a proportionate number of additional shares.

STOCK ISSUANCE 1.

Issue common stock for cash. A.

Issuance at par value DR CR

B.

C.

Common Stock (# shares issued X par value per share)

Issuance above par value DR CR CR

Cash

(1) (2)

Common Stock - Stockholders' Equity Account Additional Paid-In Capital - Stockholders' Equity Account

(Proceeds) Common Stock Additional Paid-In Capital

(Total Par Value) (Proceeds - Total Par Value)

Issue No-par Common Stock DR CR

2.

Cash

Cash

(Proceeds) Common Stock

(Stated Value X #Shares Issued)

Issue Preferred Stock Same as above EXCEPT use Preferred Stock Account.

IV.

TREASURY STOCK Classified as treasury stock only if it meets the following conditions: 1. 2. 3.

Stock issued as fully paid; Stock later was reacquired by the corporation; Stock has not been canceled or reissued.

1.

Purchase of Treasury Stock Viewed as a return of capital to the shareholders from whom the purchase was made. Thus, it is a temporary reduction of stockholders' equity. DR CR

Treasury Stock (Cost) Cash (Cost) (# Shares purchased X Cost per share) (1)

2.

Treasury Stock - Contra Stockholders' Equity Account. Normal Debit Balance. Presented between Retained Earnings and Total Stockholders' Equity

Resale of Treasury Stock A.

Use Cost Method

DR DR/CR

Cash

(Proceeds) APIC - Treasury Stock (Difference between proceeds and original

cost) CR V.

Treasury Stock

(Original Cost)

DIVIDENDS 1.

Dividend Declaration

Formal action by Board of Directors which authorizes the distribution of earnings to shareholders. 2.

Important Dates A.

Declaration Date Date on which the corporation announces its intention to pay a dividend on capital stock.

B.

Date of Record

Date on which a stockholder must own one or more shares of stock in order to receive a dividend. C.

Date of Payment Date on which a dividend is actually paid.

3.

CASH DIVIDENDS Recording declaration of dividend DR CR

Dividends Dividends Payable (# Shares of outstanding Stock X Dividend per share)

Recording payment of dividend DR CR 4.

Dividends Payable Cash

STOCK DIVIDENDS Recording declaration of stock dividend DR CR CR

Retained Earnings (# Shares to be issued X Market Price) Common Stock (# Shares to be issued X Par Value) APIC - Common Stock (Difference between market price and par value) (# Shares to be issued)

Result: Capitalization of earnings; transfer from Retained Earnings to Capital Stock Accounts. 5.

STOCK SPLITS No journal entry is needed to record a stock split. Memo entry only, indicate the change in par value and the number of shares outstanding.