18-1 capital stock chapter 18. 18-2 stock stock a unit of ownership in a corporation is called a...
TRANSCRIPT
18-1
CAPITAL STOCK
CHAPTER 18CHAPTER 18
18-2
StockStock
A unit of ownership in a corporation is called a share of stock.
Stock certificate
Stockowners
Investment
Corporation
18-3
StockStock
Shareholders’ meeting Board of directorsElect
Appoint
Corporate officers and managers
They are responsible for the operations of
the business.
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StockStock
Corporation
Issue
Common Stock Preferred Stock
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Common StockCommon Stock
If only one stock is issued by the corporation, it is called common stock.
The common stockholders have the right to vote on certain general management matters.
They have access to the financial report about corporation performance.
A portion of dividends is issued by the company to its common stockholders.
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Common StockCommon Stock
Common Stock
The common stock means that all other creditors and priority claims are settled ahead of those of the common stockholders.
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Preferred StockPreferred Stock
Preferred stock may be issued so that the company can obtain money from investors who have different investment goals.
At maturity date, the company will purchase back the preferred stocks.
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Differences Common stock
Preferred stock
The right to vote on important issues
Have No
Declare dividend After preferred stock
The first to be paid
Liquidation After preferred stock
After the creditor
Callable feature Cannot be recalled Can be made callable
The Difference between Common The Difference between Common Stock and Preferred StockStock and Preferred Stock
The company can force the preferred shareholders to cash out of their position in exchange for a “call price” that is often set at a
certain percentage of par value.
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Issuance of Par Value StockIssuance of Par Value Stock
Stocks are required to have a designated par value.
Par value “Legal capital” of the company represent
When par value stock is issued, the appropriate capital stock account is credited for the par value regardless of whether the proceeds are more or less than the par value.
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Issuance of Par Value StockIssuance of Par Value Stock
Suppose that Anderson Corporation issues 100,000 shares of $10 par value stock for $10 per share.
The entry
Cash $1,000,000
Common Stock $1,000,000
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If Anderson issues 100,000 shares of $1 par value stock for $10 per share, the entry to record the issuance of the stock at the price in excess of par value would be as follows:
Issuance of Par Value StockIssuance of Par Value Stock
The entry
Cash $1,000,000
Common Stock $100,000
Paid-in Capital in Excess of Par 900,000
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Issuance of No-Par StockIssuance of No-Par Stock
Stock may be issued without a par value.
However, to protect the corporation’s assets for the creditors, all or part of the proceeds from the issuance of no-par stock are required to be
designated as legal capital not subject to withdrawal, except in liquidation.
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Issuance of No-Par StockIssuance of No-Par Stock
Board of directors
Set a stated value
on
No-par stock
It represents the legal capital.
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Issuance of No-Par StockIssuance of No-Par Stock
Suppose that Anderson issued 100,000 shares of no-par common stock at $12 on January 1, 20X0.
The entry
Jan. 1, 20X0 Cash $1,200,000
Common Stock $1,200,000
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Issuance of No-Par StockIssuance of No-Par Stock
If the stock does not have a par value, all proceeds of the issue are credited to Common Stock and are part of the company’s legal capital.
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Issuance of No-Par StockIssuance of No-Par Stock
Assume that Anderson’s board of directors set a $10 stated value on its no-par stock. They issued 100,000 shares of no-par common stock with a $10 par value for $12 per share.
Jan. 1, 20X0 Cash $1,200,000
Common Stock $1,000,000
Paid-in Capital in Excess of Par 200,000
The entry
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Assets
DividendsDividends
Usually cash, in proportion to the number
of shares of stock held
Stockholder Corporation
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DividendsDividends
Corporation
Sufficient cashA positive balance
in retained earnings
Stockholder
If a company has a negative retained
earnings account would not pay a dividend unless it is part of a
corporate liquidation action.
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DividendsDividends
The dividend will be paid to the stockholders of record on the date of payment.
The date of record
It is the date on which ownership of the
stock of a company, and the right to
receive a dividend is determined.
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DividendsDividends
CorporationShares of stock
Shares of stock
The right to the cash dividend remains with first person and
does not transfer with the shares to the second person.
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DividendsDividends
Assume that the board of directors has decided that sufficient cash is available to pay a $50,000 cash dividend to the common stockholders.
Assume that the dividend is declared by the board of directors for stockholders on November 21, 20X0. It is recorded on December 10, 20X0 to be paid on December 31, 20X0.
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DividendsDividends
The entry
Date of declaration
November 21 Dividends $50,000
Dividends Payable $50,000
Date of record
No entries
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Date of payment
December 31 Dividends Payable $50,000
Cash $50,000
The entry
DividendsDividends
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