1. Corporations make a distinction between capital that was paid in from owners & that which was earned & reinvested Stockholders Equity … consists of: RetainedEarningsContributedCapital Contributed Capital Legal Capital is par or stated value or the amount received for shares with no par or stated valueLegal 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 transactionsamounts paid in excess of par or stated value, including capital from treasury stock transactions donated capitaldonated capital Retained Earnings are increased by earningsare increased by earnings are normally decreased by dividendsare normally decreased by dividends carry a normal credit balance (with a debit balance representing a deficit)carry a normal credit balance (with a debit balance representing a deficit)

2. Classes of Capital Stock Common StockCommon Stock Preferred StockPreferred Stock –Preferred as to Dividends Cumulative or noncumulativeCumulative or noncumulative Participating/nonparticipatingParticipating/nonparticipating –Preferred as to liquidating assets –Convertible or nonconvertible –Callable

3. 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 ……………………………………..AmntPd Purchase shares of Treasury Stock 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

4. 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 assetTreasury Stock is clearly not an asset Gains & Losses CANNOT be recognizedGains & Losses CANNOT be recognized Account for as a reduction of EquityAccount for as a reduction of Equity

5. Dividends Cash DividendsCash Dividends Stock dividends (record at market price)Stock dividends (record at market price) Liquidating DividendsLiquidating Dividends Property dividendsProperty dividends Stock Splits ( … not dividends, but a related concept )Stock Splits ( … not dividends, but a related concept ) Three Significant Dividend Dates Date of Declaration -- creates the “liability”Date of Declaration -- creates the “liability” Date of Record -- determines “who” is paidDate of Record -- determines “who” is paid Date of Payment -- when payment is madeDate of Payment -- when payment is made

6. Cash Dividends Declaration Date:Dividends (close to Retained Earnings)$$$ Dividends Payable$$$ To record the declaration of cash dividends Payment Date:Dividends Payable$$$ Cash$$$ Paid cash dividends