Stockholders’ Equity:
Paid-In Capital
Chapter 11
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
McGraw-Hill/Irwin
Copyright © 2012 The McGraw-Hill Companies, Inc.
Corporations
An entity created
by law.
Existence is
separate from
owners.
Ownership
can be
Privately, or
Closely Held
Has rights and
privileges.
Publicly Held
11-2
Advantages of Incorporation
Limited personal
liability for
stockholders
Transferability of
ownership
Professional
management
Continuity of
existence
11-3
Disadvantages of Incorporation
Heavy taxation
Greater regulation
Cost of formation
Separation of
ownership and
management
11-4
Formation of a Corporation
• Each corporation is
formed according to
the laws of the state
where it is located.
The costs associated with
incorporation are usually
expensed immediately, but
amortized over 5 years for
tax purposes.
• The application for
corporate status is
called the Articles of
Incorporation.
11-5
Rights of Stockholders
Voting (in person
or by proxy).
Rights
Stockholders
Proportionate
distribution of
dividends.
Proportionate
distribution of
assets in a
liquidation.
11-6
Rights of Stockholders
Corporate Organization Chart
Ultimate
control
Stockholders
Stockholders
usually meet
once a year.
Board of Directors
President
Secretary
Treasurer
Controller
Other Vice
Presidents
11-7
Functions of the Board of Directors
Corporate Organization Chart
Stockholders
Board of Directors
President
Secretary
Treasurer
Controller
Primary functions
are to set corporate
policies ad protect
stockholders.
Other Vice
Presidents
11-8
Functions of the Corporate Officers
Corporate Organization Chart
Contractual and legal
representation
Custodian of
funds
Stockholders
Board of Directors
Chief
Accountant
President
Secretary
Treasurer
Controller
Other Vice
Presidents
11-9
Publicly Owned Corporations Face
Different Rules
By law, publicly owned corporations must:
Prepare financial statements in accordance with
GAAP.
Have their financial statement audited by an
independent CPA.
Comply with federal securities laws.
Submit financial information for SEC review.
11-10
Stockholder Records in a
Corporation
Stockholder ledgers are often maintained by a
stock transfer agent or stock registrar.
Stockholders usually meet once a year.
Each unit of ownership is called a share of stock.
Stock certificates serve as proof that a
stockholder has purchased shares.
When the stock is sold, the stockholder signs a
transfer endorsement on the back of the stock
certificate.
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Stockholders’ Equity of a Corporation
Stockholders' equity is
increased in two ways.
Contributions by
investors in exchange
for capital stock.
Retention of profits
earned by the
corporation.
Paid-in Capital
Retained Earnings
11-12
Authorization and Issuance
of Capital Stock
Outstanding shares are
issued shares that are
owned by
stockholders.
Authorized
Shares
Issued
Shares
Outstanding
Shares
Treasury
Shares
Unissued
Shares
Treasury shares are
issued shares that
have been reacquired
by the corporation.
11-13
Stockholders’ Equity
Common stock can be issued in three forms:
Par Value
Common
Stock
No-Par
Common
Stock
Stated Value
Common
Stock
Let’s examine this
form of stock.
All proceeds
credited to
Common Stock
Treated like par
value common
stock
11-14
Preferred Stock
A separate class of stock, typically having
priority over common shares in . . .
 Dividend distributions (rate is usually
stated).
 Distribution of assets in case of
liquidation.
Other Features Include:
Cumulative
dividend
rights.
Usually
callable by
the company.
Normally has
no voting
rights.
11-15
End of Chapter 11
11-16