18-1 CAPITAL STOCK CHAPTER 18

18-2 Stock Stock A unit of ownership in a corporation is called a share of stock. Stock certificate Stockowners Investment Corporation

18-3 Stock Stock Shareholders’ meeting Board of directors Elect Appoint Corporate officers and managers They are responsible for the operations of the business.

18-4 Stock Stock Corporation Issue Common StockPreferred Stock

18-5 Common Stock Common Stock If only one stock is issued by the corporation, it is called common stock. The common stockholders have the right to vote on certain general management matters. They have access to the financial report about corporation performance. A portion of dividends is issued by the company to its common stockholders.

18-6 Common Stock Common Stock Common Stock The common stock means that all other creditors and priority claims are settled ahead of those of the common stockholders.

18-7 Preferred Stock Preferred stock may be issued so that the company can obtain money from investors who have different investment goals. At maturity date, the company will purchase back the preferred stocks.

18-8 DifferencesCommon stock Preferred stock The right to vote on important issues HaveNo Declare dividendAfter preferred stock The first to be paid LiquidationAfter preferred stock After the creditor Callable featureCannot be recalled Can be made callable The Difference between Common Stock and Preferred Stock The company can force the preferred shareholders to cash out of their position in exchange for a “call price” that is often set at a certain percentage of par value.

18-9 Issuance of Par Value Stock Stocks are required to have a designated par value. Par value “Legal capital” of the company represent When par value stock is issued, the appropriate capital stock account is credited for the par value regardless of whether the proceeds are more or less than the par value.

18-10 Issuance of Par Value Stock Suppose that Anderson Corporation issues 100,000 shares of $10 par value stock for $10 per share. The entry Cash $1,000,000 Common Stock $1,000,000

18-11 If Anderson issues 100,000 shares of $1 par value stock for $10 per share, the entry to record the issuance of the stock at the price in excess of par value would be as follows: Issuance of Par Value Stock The entry Cash $1,000,000 Common Stock $100,000 Paid-in Capital in Excess of Par 900,000

18-12 Issuance of No-Par Stock Issuance of No-Par Stock Stock may be issued without a par value. However, to protect the corporation’s assets for the creditors, all or part of the proceeds from the issuance of no-par stock are required to be designated as legal capital not subject to withdrawal, except in liquidation.

18-13 Issuance of No-Par Stock Issuance of No-Par Stock Board of directors Set a stated value on No-par stock It represents the legal capital.

18-14 Issuance of No-Par Stock Issuance of No-Par Stock Suppose that Anderson issued 100,000 shares of no-par common stock at $12 on January 1, 20X0. The entry Jan. 1, 20X0 Cash $1,200,000 Common Stock $1,200,000

18-15 Issuance of No-Par Stock Issuance of No-Par Stock If the stock does not have a par value, all proceeds of the issue are credited to Common Stock and are part of the company’s legal capital.

18-16 Issuance of No-Par Stock Issuance of No-Par Stock Assume that Anderson’s board of directors set a $10 stated value on its no-par stock. They issued 100,000 shares of no-par common stock with a $10 par value for $12 per share. Jan. 1, 20X0 Cash $1,200,000 Common Stock $1,000,000 Paid-in Capital in Excess of Par 200,000 The entry

18-17 Assets Dividends Dividends Usually cash, in proportion to the number of shares of stock held Stockholder Corporation

18-18 Dividends Dividends Corporation Sufficient cash A positive balance in retained earnings Stockholder If a company has a negative retained earnings account would not pay a dividend unless it is part of a corporate liquidation action.

18-19 Dividends Dividends The dividend will be paid to the stockholders of record on the date of payment. The date of record It is the date on which ownership of the stock of a company, and the right to receive a dividend is determined.

18-20 Dividends Dividends Corporation Shares of stock The right to the cash dividend remains with first person and does not transfer with the shares to the second person.

18-21 Dividends Dividends Assume that the board of directors has decided that sufficient cash is available to pay a $50,000 cash dividend to the common stockholders. Assume that the dividend is declared by the board of directors for stockholders on November 21, 20X0. It is recorded on December 10, 20X0 to be paid on December 31, 20X0.

18-22 Dividends Dividends The entry Date of declaration November 21 Dividends $50,000 Dividends Payable $50,000 Date of record No entries

18-23 Date of payment December 31 Dividends Payable $50,000 Cash $50,000 The entry Dividends Dividends

18-24 WE ARE SAILING RIGHT ALONG!!