Authorized Stocks:
The maximum number of shares that the corporation’s charters allows to sell.
Market Value:
Market value per share is the price which a stock is bought and sold.
Total market value = total number of shares × market value per share.
Classes of Stocks:
When all authorized shares have the same the same rights and characteristics, the stock is
called common stock, but the corporation can be authorized to issue more than one class of
stock, including preferred stocks.
Par Value:
Par value stock is a class of stock assigned a par value, which is an amount assigned per share
by a corporation in its charter it is known as minimum legal capital
No Par Value:
Stock not assigned a value per share by the corporate charter.
Stated Value Stock:
Stated value stock is no par value stock to which the director assigned a stated value per share
and it becomes the minimum legal capital.
Stock Holders’ Equity:
Paid in capital (contributed) + retained earning (cumulative net income or loss retained by a
corporation)
Issuing Stock for Non Cash Assets:
A corporation can receive assets other than cash in exchange for stock, such as land, building,
equipment, etc. The assets received will be recorded at its market value and the stock at its par
value or stated value if there is any.
For example:
The company received land valued at 4000 shares of $20 par value common stock.
Land
Common Stock
Paid in capital excess of Par value
Dr
105,000
Cr
80,000
25,000
Organization Expenses:
A corporation sometimes gives shares of its stock to promoters in exchange for their services in
organizing the corporation.
For example:
The entry to record receipt of services valued at $12000 in organizing the corporation in return
for 600 shares of $15 par value.
Common stock on June 5 is:
Organization expenses
Common Stock $15 Par value
Paid in capital excess
Dr
12,000
Cr
9,000
3,000
Cash Dividends:
The decision to pay cash dividends rest with the board of directors, they may decide to keep
the cash to invest in the corporation growth or pay debt or keep for emergencies, etc.
Alternatively, they may decide to pay cash dividends to their stock holders at regular dates.
These dividends provide a return to investors and affect the stock’s market value. Dividends
payment involves 3 important dates: declaration, record, and payment. Date of declaration is
the date the directors vote to declare an pay a dividend. This creates a legal liability of the
corporation to its stockholders. Date of record is the future data specified by the directors for
identifying those stockholders.