Stockholders' Equity Part 1

8/31/2020
1
8/31/2020
Stockholders’ Equity Outline
The Corporate Corporate Presentation and

Preferred Stock Dividend Policy
Form Capital Analysis
State Issuance of Features Financial Presentation

corporate law stock Accounting condition and Analysis
Capital stock Reacquisition for and dividend
or share of shares reporting distributions
system Stock split preferred Types of
Variety of stock dividends
Stock
ownership warrants Disclosure of
interests restrictions
2
8/31/2020
The Corporate Form of Organization
Three primary forms of business organization
Proprietorship Partnership Corporation
Special characteristics of the corporate form:

1. Influence of state corporate law.
2. Use of capital stock or share system.
3. Development of a variety of ownership interests.
3
8/31/2020
State Corporate Law

Corporation must submit articles of incorporation to
the Security and Exchange Commission.
Corporation is governed by the Revised Corporation

Code of the Philippines or Republic Act 11232.
4
8/31/2020
Capital Stock or Share System

Each share normally carries the following rights:
1. To share proportionately in profits and losses.
2. To share proportionately in management (the right to
vote for directors).
3. To share proportionately in assets upon liquidation.
4. To share proportionately in any new issues of stock of the
same class—called the preemptive right.
LO 1 Discuss the characteristics of the corporate form of organization.
5
8/31/2020
Variety of Ownership Interests

Ordinary stock represents basic ownership interest.
Bears ultimate risks of loss.
Receives the benefits of success.
Not guaranteed dividends nor assets upon dissolution.
Preferrence stock is created by contract, when stockholders’

sacrifice certain rights in return for other rights or privileges,
usually dividend preference.
LO 1 Discuss the characteristics of the corporate form of organization.
6
8/31/2020
Corporate Capital
Common Stock
Account
Contributed
Share Premium
Capital Account
Preferred Stock
Account
Three Primary Retained Earnings

Sources of Equity Account
Less:
Treasury Stock
Account
Other Comprehensive
Income
LO 2 Identify the key components of stockholders’ equity.
Account
7
8/31/2020
Corporate Capital
Issuance of Stock
Terms:
a. Authorized– the maximum number of stocks and
amount that a corporation can issue
b. Subscribed – the shares and amount that a
stockholder has promised to pay.
c. Paid – amount paid on the subscription
d. Issued and outstanding – the number of shares and
amount that have been fully paid and certificate of
stock has been issued to the stockholder.
8
8/31/2020
Corporate Capital
Issuance of Stock
Shares/stock are issued either at:
1. Par value stock.
2. No-par stock.
3. Stock issued with other securities.
4. Stock issued in noncash transactions.
5. Costs of issuing stock.
9
8/31/2020
Corporate Capital
Par Value Stock
The par value is the stated value per share. This price was
printed on paper stock certificates.
A par stock has a minimum value per share assigned by

the company that issues it.
LO 3 Explain the accounting procedures for issuing shares of stock.
10
8/31/2020
Corporate Capital
Example 1: Park Seo Jeon Corporation issued 300 shares

of P10 par value common stock for P3,000. Prepare Park
Seo Jeon ’ journal entry.
Journal entry:
Cash 3,000
Common stock (300 x P10) 3,000
11
8/31/2020
Corporate Capital
Example 2: Park Seo Jeon Corporation issued 300 shares

of P10 par value common stock for P4,100. Prepare Park
Seo Jeon ’ journal entry.
Journal entry:
Cash 4,100
Share Premium 1,100
12
8/31/2020
Corporate Capital
No-Par Stock
Reasons for issuance:
Avoids contingent liability.
Avoids confusion over recording par value
versus fair market value.
13
8/31/2020
Corporate Capital
Example 3:
3: Do Kyungsoo Corporation issued 600 shares of
no-par common stock for P10,200. Prepare Do Kyungsoo’s
journal entry if (a) the stock has no stated value, and (b) the
stock has a stated value of P2 per share.
Journal entry:
a. Cash 10,200
Common stock 10,200
b. Cash 10,200
Share premium 9,000
14
8/31/2020
Corporate Capital
Stock Issued with Other Securities

Two methods of allocating proceeds:
1. the proportional method and
2. the incremental method.
15
8/31/2020
Corporate Capital
Example 4:4: Kim Soo Hyun Corporation issued 300 shares of P10
par value common stock and 100 shares of P50 par value preferred
stock for a lump sum of P14,200. The common stock has a market
value of P20 per share, and the preferred stock has a market value
of P90 per share.
Number Amount Total Percent
Common stock 300 x $ 20.00 = $ 6,000 40%
Preferred stock 100 x 90.00 9,000 60%
Fair Market Value $ 15,000 100%
Allocation: Common Preferred

Issue price $ 14,200 $ 14,200 Proportional
Allocation % 40% 60% Method
Total $ 5,680 $ 8,520
16
8/31/2020
Corporate Capital
Example 5: Kim Soo Hyun Corporation issued 300 shares of P10
value of P20 per share, and the preferred stock has a market value
of $90 per share.
Journal entry (Proportional):

Cash 14,200
Preferred stock (100 x P50) 5,000
Share premium-preferred 3,520
Share premium-common 2,680
17
8/31/2020
Corporate Capital
Example 5: Kim Soo Hyun Corporation issued 300 shares of $10 par
value common stock and 100 shares of P50 par value preferred
value of P20 per share, and the value of the preferred stock is
unknown.
Number Amount Total

Common stock 300 x $ 20.00 = $ 6,000
Preferred stock 100 x -
Fair Market Value $ 6,000
Allocation: Common Preferred

Issue price $ 14,200
Incremental
Common (6,000) Method
Total $ 6,000 $ 8,200
18
8/31/2020
Corporate Capital
Example 5: Kim Soo Hyun Corporation issued 300 shares of P10
value of P20 per share, and the value of the preferred stock is
unknown.
Journal entry (Incremental):

Cash 14,200
Preferred stock (100 x $50) 5,000
Share premium-preferred 3,200
Common stock (300 x $10) 3,000
Share premium-common 3,000
19
8/31/2020
Corporate Capital
Stock Issued in Noncash Transactions

The general rule: Companies should record stock
issued for services or property other than cash at
either the:
fair value of the stock issued or
fair value of the noncash consideration
received, or
Par value of the shares
whichever is more clearly determinable.
20
8/31/2020
Corporate Capital
Example 6: Song Jong Ki Corporation was organized on January
1, 2020. It is authorized to issue 500,000 shares of no par
common stock with a stated value of P1 per share. Prepare the
journal entry to record the following.
April 1 Issued 24,000 shares of common stock for land. The

cost of the land was P50,000; the fair value of the stocks is
P75,000 and the fair market value of the land was P80,000.
Land 75,000
Common stock (24,000 x P1) 24,000
Share premium – common 51,000
21
8/31/2020
Corporate Capital
April 1 Issued 24,000 shares of common stock for land. The

cost of the land was P50,000; the fair market value of the land
was P80,000.
Land 80,000
Common stock (24,000 x P1) 24,000
Share premium - common 56,000
22
8/31/2020
Corporate Capital
Aug. 1 Issued 10,000 shares of common stock to attorneys in

payment of their bill of P50,000 for services rendered in
helping the company organize.
Organization expense 50,000

Common stock (10,000 x P1) 10,000
Share premium - common 40,000
23
8/31/2020
Corporate Capital
Costs of Issuing Stock

Direct costs incurred to sell stock, such as
underwriting costs,
accounting and legal fees,
printing costs, and
taxes,
should be reported as a reduction of the amounts
paid in (additional paid-in capital).
24

Stockholders' Equity Part 1

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Stockholders' Equity Part 1

Uploaded by

Copyright:

Available Formats

8/31/2020

Stockholders’ Equity Outline

The Corporate Corporate Presentation and

State Issuance of Features Financial Presentation

The Corporate Form of Organization

Three primary forms of business organization

Proprietorship Partnership Corporation

Special characteristics of the corporate form:

The Corporate Form of Organization

State Corporate Law

Corporation is governed by the Revised Corporation

The Corporate Form of Organization

Capital Stock or Share System

LO 1 Discuss the characteristics of the corporate form of organization.

The Corporate Form of Organization

Variety of Ownership Interests

Preferrence stock is created by contract, when stockholders’

LO 1 Discuss the characteristics of the corporate form of organization.

Three Primary Retained Earnings

Par Value Stock

A par stock has a minimum value per share assigned by

LO 3 Explain the accounting procedures for issuing shares of stock.

Example 1: Park Seo Jeon Corporation issued 300 shares

Example 2: Park Seo Jeon Corporation issued 300 shares

Stock Issued with Other Securities

LO 3 Explain the accounting procedures for issuing shares of stock.

Allocation: Common Preferred

Journal entry (Proportional):

Number Amount Total

Allocation: Common Preferred

LO 3 Explain the accounting procedures for issuing shares of stock.

Journal entry (Incremental):

Stock Issued in Noncash Transactions

April 1 Issued 24,000 shares of common stock for land. The

April 1 Issued 24,000 shares of common stock for land. The

Aug. 1 Issued 10,000 shares of common stock to attorneys in

Organization expense 50,000

Costs of Issuing Stock

LO 3 Explain the accounting procedures for issuing shares of stock.

You might also like