Chapter 14 Sale of shares

CORPORATE CAPITAL Shareholders’ equity (owner’s equity) The shareholders’ equity section of a corporation’s balance sheet consists of: Contributed capital Share capital Additional contributed capital Retained earnings

SHAREHOLDERS’ EQUITY SECTION Contributed capital Common shares, 100,000 no par value shares authorized, 50,000 issued Retained earnings Total shareholders’ equity $800,000 130,000 $930,000

ISSUING NO PAR VALUE COMMON SHARES FOR CASH Shares are most commonly issued for cash. When no par value common shares are issued, the entire proceeds from the issue becomes legal capital. Account Titles and Explanation Debit Credit Cash 1,000 1,000 Common Shares To record issue of 1,000 shares.

ISSUING STATED VALUE COMMON SHARES FOR CASH When common shares have a stated value, the stated value is credited to Common Shares. When the selling price exceeds the stated value, the excess is credited to Contributed Capital in Excess of Stated Value. Account Titles and Explanation Debit Credit Cash 5,000 1,000 4,000 Common Shares Contributed Capital in Excess of Stated Value To record issue of 1,000 shares.

SHAREHOLDERS’ EQUITY - CONTRIBUTED CAPITAL IN EXCESS OF STATED VALUE Common shares, 10,000 shares of $1 stated value authorized, 2,000 shares issued Contributed capital in excess of stated value Total contributed capital Retained earnings Total shareholders’ equity $ 2,000 4,000 6,000 27,000 $33,000

ISSUING COMMON SHARES FOR SERVICES OR NON-CASH ASSETS Shares may be issued for services, such as compensation to lawyers, or for non-cash assets, such as land. When common shares are issued for services or non-cash assets, cost is either the fair market value of the consideration given up or the consideration received, whichever is more clearly determinable.

PREFERRED SHARES Preferred shares have priority over common shares with regards to: 1. Dividends and 2. Assets in the event of liquidation Preferred shareholders usually do not have voting rights Preferred shares are shown first in the share capital section of shareholders' equity

PREFERRED SHARE PREFERENCES Liquidation preference Cumulative (dividends in arrears) Convertible (book value) Redeemable/callable (company option) Retractable (shareholder option)

SHAREHOLDERS’ EQUITY PRESENTATION ZABOSCHUK INC. Partial Balance Sheet Shareholders’ equity Contributed capital Share capital $9 preferred shares, no-par value, cumulative, 10,000 shares authorized, 6,000 shares issued Common shares, $5 stated value, unlimited shares authorized, 400,000 shares issued Total share capital Additional contributed capital Contributed capital in excess of stated value - common shares Total contributed capital Retained earnings Total shareholders’ equity $ 770,000 2,000,000 2,770,000 860,000 3,630,000 1,058,000 $4,688,000