Chapter 15 (Stockholders' Equity) Flashcards
3 Major Components of Stockholders’ Equity
- Contributed Capital
- Retained Earnings
- Accumulated Other Comprehensive Income (AOCI)
Authorized
The number of shares that can be legally issued by a corporation
Decided by the secretary of state
Issued
The number of shares sold to outsiders
Outstanding
The number of shares that have been issued and are being held by outsiders, not the corporation
Treasury
The number of shares owned/repurchased by a corporation that are being held
What shares get paid dividends?
ONLY the number of outstanding shares
Issue Costs
Reduces the stock issue price
Issues 1,000 shares @ $1 par for $2,500 and incurs $200 worth of stock issue costs.
Dr Cash $2,300
Cr Common Stock-Par $1,000
Cr APIC in Excess of Par- Common Stock $1,300
Issues 1,000 shares @ $1 par in exchange for professional services (CPA Services) valued @ $3,000
Dr Accounting Fees $3,000
Cr Common Stock-Par $1,000
Cr APIC in Excess of Par- Common Stock $2,000
***Goods and services should be issued at fair value, if there is no fair value, look to the fair market value (new business)
Stock Split
May issue a stock split if market price of the stock is too high
Proportionate number of shares increase, proportionate decrease in par value
Does NOT impact stockholders’ equity section
***NO ENTRY REQUIRED–disclosed in a memo
Can be ANY ratio
Cost Method
As of 2012, only 2% of corporations use the par value method
Preferred Stock
Very similar to common stock—could have one or more preferences
Cumulative Preferred Stock
Shareholders are entitled to receive a stated amount of dividends each year
If the corporation decides it’s not smart to issue dividends, shareholders will be owed dividends in future periods
Dividends in Arrears (NOT a liability)
Footnote disclosure
Convertible Preferred Stock
Shareholder at their option can convert shares they own into common stock:
- Derecognize preferred stock account
- Exchange preferred stock for common stock
Callable Preferred Stock
Corporations action to call and retire their shares
Dividends in Arrears MUST be paid first, before calling the shares:
- Derecognize Capital Stock Accounts that were reported
- Wipe out balances
