Check-in’s If an organization has issued 1,000 shares and they are getting ready to issue an additional 1,000 shares, how many shares need to be offered to a current owner with a 10% stake based on the pre-emptive right? The par value of a stock is based on an algorithm designed by NASA True of False (Please circle correct answer) A company has 1,000,000 shares authorized, 100,000 in treasury stock, and 500,000 shares issued. How many shares would currently receive dividends?

Steps for recording Common Stock issues No par Stock Calculate cash received from sale of stock Formula = number of shares sold * sales price per share Journal Entry Cash – debit for amount of cash received Common Stock – credit for amount of cash received Par Stock Calculate par value of stock issuance Formula = shares issued * par value Common Stock – credit for amount of the par value calculated above Additional Paid-in-Capital - credit based on the difference between cash received and par value of issuance

Based on Targets Financial Notes from the previous page – record transactions for issuance of 1,000 of Target Common Stock sold for $100 per share and 1,000 shares of Target Preferred Stock at $100 per share.

LO4 Treasury Stock (Cont.) Par value of stock is not considered in treasury stock transaction. Steps for initial stock repurchase (Par is not considered for treasury stock transactions) Calculate cost of repurchase Number of shares repurchased * purchase price of stock Debit treasury stock Credit Cash Steps for re-issuing treasury stock Calculate proceeds from reissue Number of shares reissued * sales price of stock Debit Cash Credit treasury stock account based on the original cost for the share of treasury stock. Difference between the debit to cash and credit to treasury stock record in additional paid-in-capital (either as a debit or credit). Treasury stock is the name given to a corporation’s own stock that it has reacquired. The question that arises out of this concept is “Why Corporations Repurchase Their Stock?” The reasons are: 1. To boost under-priced stock. When corporation management feels the market price of its stock is too low, it may attempt to support the price by decreasing the supply of stock in the market place. 2. To distribute surplus cash without paying dividends. While dividends usually are a good thing, investors do pay personal income tax on them. Another way for a firm to distribute surplus cash to shareholders without giving them taxable dividend income is to use the excess cash to repurchase its own stock. 3. To boost earnings per share. Earnings per share is calculated as earnings divided by the number of shares outstanding. Stock repurchases reduce the number of shares outstanding, thereby increasing earnings per share. However, with less cash in the corporation, it’s more difficult for companies to maintain the same level of earnings following a share repurchase. 4. To offset issuance of shares under stock-based compensation plans. Perhaps the primary motivation for stock repurchases is to offset the increase in the number of shares created by employee stock award and stock option compensation programs. 10-4

Exercise – Jan 17 Issued 2,200 shares of $2 Exercise – Jan 17 Issued 2,200 shares of $2.50 par common stock at $10 per share. May 23 Purchased 300 shares of treasury stock at $12 per share. Jul 11 Sold 200 shares of treasury stock at $20 per share.

Check in’s UCF decides that the student union should be owned by students, so they complete an initial public offering of 100,000 shares @ $10 with a par value of $1. How much is the credit to additional paid-in-capital? An increase to the treasury stock account, will increase or decrease the overall amount of stockholders’ equity on the balance sheet? (please circle correct answer) After 4 years of student ownership of the Union, the BOD decides to repurchase 10,000 shares of stock from graduating students for $10 per share. This stock is then re-issued to new students at $15 per share. If 100 shares are re-issued, what is the credit to treasury stock? The BOD at the Union decides to issue a dividend of $100 per share. There are 1,000,000 shares authorized, 100,000 issued and 9,900 shares of treasury stock. What is the credit amount to dividends payable?