Lecture Accounting principles (8th edition) – Chapter 13: Corporations: Organization and capital stock transactions

In this chapter, the learning objectives are: Discuss and account for the formation of a partnership, explain how to account for net income or net loss of a partnership, explain how to account for the liquidation of a partnership.

or noncash assets

Accounting for Common Stock Issues

Accounting for Treasury Stock

Accounting for Treasury Stock

Preferred Stock

Preferred Stock

Statement Presentation and Analysis

Statement Presentation and Analysis

Dividend preferences Liquidation preference

Presentation Analysis—Book value per share

Publicly held Privately held

stockholders.

stockholder, employee, or  officer.

owners from having an  active role in managing the  company.

Characteristics of a Corporation

Stockholders

Chairman and Board of Directors

President and Chief Executive Officer

General

Counsel and

Secretary

Vice President Marketing

Vice President Finance/Chief Financial Officer

Vice President Operations

Vice President Human Resources

Illustration 13­1 Corporation 

organization chart

1 Vote  in election of board of directors 

and on actions that require stockholder  approval.

Stock Issue Considerations

Charter indicates the amount of stock that a corporation is  authorized to sell.

Number of authorized shares is often reported in the  stockholders’ equity section.

Authorized Stock

Stock Issue Considerations

Corporation can issue common stock directly to investors or  indirectly through an investment banking firm.

Stock Issue Considerations

Stock of publicly held companies is traded on organized exchanges.  Interaction between buyers and sellers determines the prices per  share. 

Prices set by the marketplace tend to follow the trend of a company’s  earnings and dividends. 

Factors beyond a company’s control, may cause day­to­day  fluctuations in market prices.

Market Value of Stock

Stock Issue Considerations

Years ago,  par value  determined the legal capital per share that a  company must retain in the business for the protection of corporate  creditors.

Paid­in Capital in  Excess of Par

Illustration :  Knopfle Corporation issued 600 shares of no­par common  :  

stock for $10,200. Prepare Knopfle’s journal entry if (a) the stock has no  stated value, and (b) the stock has a stated value of $2 per share.

E13­5    On March 2 nd , Leone Co. issued 5,000 shares of $5 par value 

BE13­5    Kane Inc.’s $10 par value common stock is actively traded at a  market value of $15 per share.  Kane issues 5,000 shares to purchase land  advertised for sale at $85,000. Journalize the issuance of the stock in 

Paid­in Capital in  Excess of Par

Treasury stock  ­ corporation’s own stock that it has reacquired from  shareholders, but not retired.

Accounting for Treasury Stock

Treasury stock  (1,000 x $28)   28,000

common stock for $25 per share.  Record the journal entry for the following  transaction:

On   April 1 st  the company reacquired 1,000 shares for $28 per share.

Accounting for Treasury Stock

Accounting for Treasury Stock

Accounting for Treasury Stock

Stockholders' equity

Paid-in capital Common stock, $1 par, 15,000 issued

Total stockholders' equity $ 547,000

Above Cost  Below Cost

Both increase total assets and stockholders’ equity  

Accounting for Treasury Stock

Accounting for Treasury Stock

Accounting for Treasury Stock

Right to receive dividends before common stockholders.

Per share dividend amount is stated as a percentage of the  preferred stock’s par value or as a specified amount.

their annual dividend plus any dividends in arrears before  common stockholders receive dividends.

Preferred Stock

Preferred Stock

Statement Analysis and Presentation

Illustration 13­12

*  When a company has preferred stock, the preferred stockholders claim on net  assets must be deducted from total stockholders’ equity.

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