Components of Stockholders’ Equity
 Paid-in capital
• “Legal” capital (par or stated value)
• Additional paid-in capital
 Accumulated other comprehensive
income
 Retained earnings (undistributed earnings)
Issuance of Stock
 Par value stock
• Record common stock at par value
 No-par with stated value
• Record common stock at stated value
 “Pure” no-par stock
• Entire sale proceeds credited to stock account
Subscribed Stock
 Individuals
sign valid contracts for stock
purchase.
 Entire Paid-in Capital in Excess of Par is
recorded at issuance.
 Common Stock Subscribed credited.
 Common Stock is recorded ONLY on full
receipt of cash.
Subscribed Stock - Entries
Description
Entry
Subscriptions
received, $1,000
(par = $250)
 Subs. Rec.
Cash received
 Cash
CS Subscribed
APIC
Subs. Rec.
Issuance of stock
1000
 CS Subscribed
Com. Stock
250
750
1000
1000
250
250
Financial Statement Presentation
of Subscriptions Receivable
 Deduction from stockholders’ equity
[preferred method and required by SEC
unless receivable collected prior to issuance
of financial statements]
 Asset (current if collectible within a year or
operating cycle …)
Financial Statement Presentation of
Common Stock Subscribed
 Presented in a manner similar to but
separate from (below) common stock
 Must be identified as subscribed stock
Reasons for Treasury Stock
• Increase earnings per share and return on equity
• Provide tax efficient distributions of excess cash to
shareholders
• Provide stock for employee stock compensation
contracts
• Thwart takeover attempts
• Create or improve the market for the stock
Recording Treasury Stock

COST METHOD:
 Treasury
stock recorded at cost
 Shown as reduction of equity in stockholders’
equity section

PAR VALUE METHOD:
 Treasury
stock recorded at par value
 Shown as reduction of common stock in
stockholders’ equity section
CASE 1
COST METHOD
Feb. 15
Apr. 28
TS (10,000 X 15)
Cash
PAR VALUE METHOD
150,000
Cash
34,000
TS (2,000 X 15)
APIC-TS
Aug. 17 Cash
27,000
APIC-TS
4,000
Retained earnings
TS (3,000 X 15)
150,000
30,000
4,000
14,000
45,000
TS (10,000 X 10)
100,000
APIC (1/3 of 30,000) 10,000
Retained earnings 40,000
Cash
150,000
Cash
34,000
TS (2,000 X 15)
20,000
APIC
14,000
Cash
Retained earnings
TS (3,000 X 10)
27,000
3,000
30,000
CASE 2
Cost Method
Par Value Method
Feb. 15
TS (10,000 X 10.50) 105,000
Cash
105,000
TS (10,000 X 10)
100,000
APIC (1/3 of 30,000) 10,000
Cash
105,000
APIC-TS
5,000
Apr. 28
Cash
34,000
TS (2,000 X 10.50)
21,000
APIC-TS
13,000
Cash
34,000
TS (2,000 X 10)
20,000
APIC
14,000
Aug. 17 Cash
27,000
APIC-TS
4,500
TS (3,000 X 10.50)
31,500
Cash
27,000
APIC-TS
3,000
TS (3,000 X 10)
30,000
Preferred Stock Features
Preference as to dividends
Preference as to assets in the event of
liquidation
Convertibility into common stock at the
option of the stockholders
Callable at the option of the corporation
Nonvoting
Stock Issued in Noncash Transactions
with Other than Employees
Record at FV of stock issued or FV of
services or property received, whichever is
more clearly determinable
Retained Earnings
Debit Adjustments
• Net loss
• Prior period
adjustments
• Cash dividends
• Property dividends
• Stock dividends
• Treasury stock
deficiencies
Credit Adjustments
• Net income
• Prior period
adjustments
• Quasi-reorganization
adjustments
Types Of Dividends





Cash dividends
Scrip dividends
Property dividends
Stock dividends
Liquidating dividends (return of capital)
Cash Dividends - Three Important Dates
Date of declaration – date dividends are
declared
Date of record – date list of stockholders to
whom dividends are to be paid is finalized
Date of payment - date dividends are paid to
stockholders of record
Cash Dividends: Journal Entries

Date of Declaration

Retained Earnings
Dividends Payable

Date of Record

No Entry

Date of Payment

Dividends Payable
Cash
PROPERTY DIVIDENDS
 Nonreciprocal transfers of
nonmonetary assets to owners
 Record at fair value of assets
transferred (recognize gain/loss on
transfer)
Property Dividend:Entries
declared on Dec. 21, 2014 – to be
distributed in the form of marketable securities
owned by Alpha Company.
 Dividend is declared on Dec. 21, 2014 and
payable on Jan. 21, 2015 to stockholders of record
on Jan 14, 2015.
 Fair value of securities is $134,000 on Dec 21,
2014 and $ 135,900 on Jan 21, 2015.
 Cost of securities is $110,000.
Record the entries on the dates of declaration,
record, and payment.
 Dividend
Property Dividend Entries
1 Declaration Date
Investments
24,000
Gain – Mkt. Sec.
24,000
2 Declaration Date
Ret. Earnings 134,000
Prop. Div. Pay.
134,000
3
Prop. Div. Pay 134,000
Investments
134,000
Payment Date
Stock Dividends
 Issuance of more-shares dividend (no cash flow is
involved)
 Small stock dividends involve issues of less than
20% - 25% of outstanding stock
 The accounting for small stock dividends is based
on the fair market value of stock issued.
 The accounting for large stock dividends (more
than 20%-25% of outstanding stock) is based on
the par value of stock issued.
Stock Dividends
Types of Dividends
Small Dividend
Large dividend
Less than
20 - 25% shares
More than
20 - 25% shares
Use FMV
at declaration
Use par
value
Stock Dividends: Journal Entries
• Outstanding stock: 1,000 shares; $10 par
• Stock dividend: 10%
• FMV on date of declaration: $12
Small Stock Dividend
Stock dividend = 10% of 1,000 shares = 100 shares
Declaration
Ret. Earnings
CS Distributable
APIC
1,200
Distribution
CS Distributable
Common Stock
1,000
1,000
200
1,000
Large Stock Dividends
• Outstanding stock: 3,000 shares; $10 par
• Stock dividend: 30%
• FMV on date of declaration: $12
Large Stock Dividends
Stock dividend = 30% of 3,000 shares = 900 shares
Declaration
Ret. Earnings
CS Distributable
9,000
Distribution
CS Distributable
Common Stock
9,000
9,000
9,000
STOCK SPLITS





Par value of each share decreases
Number of shares increases
Total par value is unchanged
Total stockholders’ equity is unchanged
No formal journal entry [memo entry is made]
Stock Dividends and Stock Splits
Stock Dividends
• Par value of a share does
•
•
•
•
not change
Total number of shares
increases
Total stockholders’ equity
does not change
The composition of equity
changes (less of retained
earnings; more of stock)
Stock dividends require
journal entries
Stock Splits
• Par value of a share
•
•
•
•
decreases
Total number of shares
increases
Total stockholders’ equity
does not change
The composition of equity
does not change (same
amounts of stock and RE)
Stock splits do not require
journal entries