Corporations make a distinction between capital that was
paid in from owners & that which was earned & reinvested
Stockholders Equity
… consists of:
Contributed
Capital
Contributed Capital
•Legal Capital is par or stated
value or the amount received for
shares with no par or stated value
•amounts paid in excess of par or
stated value, including capital from
treasury stock transactions
•donated capital
Retained
Earnings
Retained Earnings
•are increased by earnings
•are normally decreased by
dividends
•carry a normal credit
balance (with a debit balance
representing a deficit)
Classes of Capital Stock
• Common Stock
• Preferred Stock
– Preferred as to Dividends
• Cumulative or noncumulative
• Participating/nonparticipating
– Preferred as to liquidating assets
– Convertible or nonconvertible
– Callable
Accounting for Stock
Issuance for Cash:
Cash …………………………….. Amnt. Rec’d
Common Stock……………..
Legal Capital
Paid-in Capital in Excess .....
Difference
Acquisition of Treasury Stock:
Treasury Stock ……………………………… AmntPd
Cash ……………………………………..
Purchase shares of Treasury Stock
AmntPd
Reissuance of Treasury Stock:
Cash…………... …………………………….. AmntRec’d
Paid in Capital – Treasury Stock ……………Difference
Treasury Stock …………………………
ItsCost
Paid-in Capital - Treasury Stock ……..
Difference
Sold shares Treasury Stock
Treasury Stock
… is a corporation’s own stock that
(1) has been fully paid for by stockholders
(2) has been legally issued
(3) is reacquired by the corporation &
(4) is being held by the corporation
• Treasury Stock is clearly not an asset
• Gains & Losses CANNOT be recognized
• Account for as a reduction of Equity
Dividends
•
•
•
•
•
Cash Dividends
Stock dividends (record at market price)
Liquidating Dividends
Property dividends
Stock Splits ( … not dividends, but a related concept)
Three Significant Dividend Dates
• Date of Declaration -- creates the “liability”
• Date of Record -- determines “who” is paid
• Date of Payment -- when payment is made
Cash Dividends
Declaration Date:
Payment Date:
Dividends (close to Retained Earnings)
$$$
Dividends Payable
To record the declaration of cash dividends
$$$
Dividends Payable
Cash
Paid cash dividends
$$$
$$$