Reporting Stockholders Equity

ckChapter 11 – Reporting and Analyzing Stockholders’ Equity

I. Characteristics of a Corporation (Publicly held (closely held))

* Separate legal existence;

* Limited liability of stockholders; limited to investment

* Transferable ownership rights;

* Ability to acquire capital;

* Continuous life;

* Corporation management:

Shareholders

Shareholders

* Voting rights * Profit sharing * Preemptive right * Residual claim
Board of Directors
Board of Directors

CEO(PRESIDENT)

CEO(PRESIDENT)

. other vps

. other vps

CIO
CIO
CFO
CFO
COO
COO

Treasurer

Treasurer

Controller

Controller

* Government regulations; file application with state government-> corportate charter by-law

* Additional taxes. Double taxation

II. Stock Issue

1. Basics of Stock Issue:

(1) Authorized Stock: The maximum amount of stock that a corporation is authorized to sell by corporate charter.

(2) Outstanding Stock: Capital stock that has been issued and is being held by stockholders. Legal capital= # of issued shares x par value per share

(3) Par Value Stock: Capital stock that has been assigned an arbitrary value per share in the corporate charter.

(4) No-par value Stock: Capital stock that has not been assigned a value in the corporate charter.

(5) Stated Value of No-par value Stock: Value per share assigned by the board of directors to no-par value stock.

Authorized

Issued

Outstanding

(6) Paid-in Capital: Amount paid to corporation by stockholders for shares of ownership.

(7) Retained Earnings: Earned capital held for future use in the business.

2. Accounting for Common Stock Issues:

(1) Issuing Stock at Par

Example 1:
On March 1, 2002, XYZ Company issued 10,000 shares of $10 par value common stock at par.

(2) Issuing Stock above Par

Example 2:
On June 10, XYZ Company issued 5,000 shares of $10 par value common stock at $12 per