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Chapter
11 STOCKHOLDERS’
EQUITY:
PAID-IN CAPITAL
Corporations
An entity
created by law.
Privately, or
Existence is Closely, Held
Ownership
separate from
can be
owners.
Advantages of Incorporation
Limited personal
liability for
stockholders.
Transferability of
ownership.
Professional
management.
Continuity of
existence.
Disadvantages of Incorporation
Heavy taxation.
Greater regulation.
Cost of formation.
Separation of
ownership and
management.
Formation of a Corporation
Rights of Stockholders
Voting (in person
or by proxy).
Proportionate
Right distribution of
s dividends.
Proportionate
Stockholders distribution of
assets in a
liquidation.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2002
Slide
1-8
Rights of Stockholders
Rights of Stockholders
Each unit of
ownership is
called a share of
stock.
A stock
certificate serves
as proof that a
stockholder has
purchased
shares.
Rights of Stockholders
President
S tockholders' equity is
increased in tw o w ays.
Stockholders’ Equity
Par value is an
arbitrary
amount
assigned to
each share of
stock when it is
authorized.
Market price is
the amount that
each share of
stock will sell
for in the
market.
Stockholders’ Equity
Record:
The cash received.
The number of shares issued × the par value
per share in the Common Stock account.
The remainder is assigned to Contributed
Capital in Excess of Par.
Preferred Stock
Some preferred
stock is convertible
into shares of
common stock.
Preferred Stock
Stockholders' Equity with Common and Preferred Stock
Stockholders' Equity
Contributed capital:
Preferred Stock - $100 par value; 1,000 shares
authorized; 50 shares issued and
outstanding $ 5,000
Common Stock - $10 par value; 50,000 shares
authorized; 30,000 shares issued and
outstanding 300,000
Contributed Capital in Excess of Par 1,000
Retained earnings 65,000
Total stockholders' equity $ 371,000
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Market Value
Common stock is
Accounting by
carried at original issue
the issuer.
price.
Investments in
Accounting by marketable securities
the investor. are carried at market
value.
Stock Splits
Treasury Stock
Treasury
shares are
No voting
Contra issued
or shares that
equity have been
dividend
account reacquired
rights by the
corporation.
Stockholders' Equity
Contributed capital:
Preferred Stock - $100 par value; 1,000 shares
authorized; 50 shares issued & outstanding $ 5,000
Common Stock - $10 par value; 50,000 shares
authorized; 30,000 shares issued and
outstanding 300,000
Contributed Capital in Excess of Par 21,000
Retained earnings 65,000
Subtotal $ 391,000
Less: Treasury stock 110,000
Total Stockholders' equity $ 281,000
End of Chapter 11