Components of Stockholders’ Equity  Paid-in capital “Legal” capital (par or stated value) Additional paid-in capital  Accumulated other comprehensive income  Retained earnings ( undistributed earnings)

 Par value stock Record common stock at par value  No-par with stated value Record common stock at stated value  “Pure” no-par stock Entire sale proceeds credited to stock account Issuance of Stock

Subscribed Stock u Individuals sign valid contracts for stock purchase. u Entire Paid-in Capital in Excess of Par is recorded at issuance. u Common Stock Subscribed credited. u Common Stock is recorded ONLY on full receipt of cash.

Subscribed Stock - Entries  Subscriptions received, $1,000 (par = $250)  Cash received  Issuance of stock  Subs. Rec CS Subscribed 250 APIC 750  Cash 1000 Subs. Rec  CS Subscribed 250 Com. Stock 250 DescriptionEntry

Financial Statement Presentation of Subscriptions Receivable  Deduction from stockholders’ equity [preferred method and required by SEC unless receivable collected prior to issuance of financial statements]  Asset (current if collectible within a year or operating cycle …)

Financial Statement Presentation of Common Stock Subscribed  Presented in a manner similar to but separate from (below) common stock  Must be identified as subscribed stock

Reasons for Treasury Stock Increase earnings per share and return on equity Provide tax efficient distributions of excess cash to shareholders Provide stock for employee stock compensation contracts Thwart takeover attempts Create or improve the market for the stock

Recording Treasury Stock  COST METHOD:  Treasury stock recorded at cost  Shown as reduction of equity in stockholders’ equity section  PAR VALUE METHOD:  Treasury stock recorded at par value  Shown as reduction of common stock in stockholders’ equity section

CASE 1 COST METHOD PAR VALUE METHOD Feb. 15TS (10,000 X 15)150,000TS (10,000 X 10)100,000 Cash150,000APIC (1/3 of 30,000) 10,000 Retained earnings 40,000 Cash150,000 Apr. 28Cash34,000Cash34,000 TS (2,000 X 15)30,000 TS (2,000 X 15) 20,000 APIC-TS4,000 APIC14,000 Aug. 17Cash27,000Cash27,000 APIC-TS4,000Retained earnings3,000 Retained earnings14,000TS (3,000 X 10)30,000 TS (3,000 X 15)45,000

CASE 2 Cost Method Par Value Method Feb. 15TS (10,000 X 10.50)105,000TS (10,000 X 10)100,000 Cash105,000APIC (1/3 of 30,000)10,000 Cash105,000 APIC-TS 5,000 Apr. 28Cash34,000Cash34,000 TS (2,000 X 10.50)21,000TS (2,000 X 10)20,000 APIC-TS13,000APIC14,000 Aug. 17Cash27,000Cash27,000 APIC-TS4,500APIC-TS3,000 TS (3,000 X 10.50)31,500TS (3,000 X 10)30,000

Preferred Stock Features tPreference as to dividends tPreference as to assets in the event of liquidation tConvertibility into common stock at the option of the stockholders tCallable at the option of the corporation tNonvoting

Stock Issued in Noncash Transactions with Other than Employees  Record at FV of stock issued or FV of services or property received, whichever is more clearly determinable

Retained Earnings Net loss Prior period adjustments Cash dividends Property dividends Stock dividends Treasury stock deficiencies Net income Prior period adjustments Quasi-reorganization adjustments Debit AdjustmentsCredit Adjustments

Types Of Dividends  Cash dividends  Scrip dividends  Property dividends  Stock dividends  Liquidating dividends (return of capital)

Cash Dividends - Three Important Dates Date of declaration – date dividends are declared Date of record – date list of stockholders to whom dividends are to be paid is finalized Date of payment - date dividends are paid to stockholders of record

Cash Dividends: Journal Entries  Date of Declaration  Date of Record  Date of Payment  Retained Earnings Dividends Payable  No Entry  Dividends Payable Cash

PROPERTY DIVIDENDS  Nonreciprocal transfers of nonmonetary assets to owners  Record at fair value of assets transferred (recognize gain/loss on transfer)

Property Dividend:Entries ç Dividend declared on Dec. 21, 2014 – to be distributed in the form of marketable securities owned by Alpha Company. ç Dividend is declared on Dec. 21, 2014 and payable on Jan. 21, 2015 to stockholders of record on Jan 14, ç Fair value of securities is $134,000 on Dec 21, 2014 and $ 135,900 on Jan 21, ç Cost of securities is $110,000. Record the entries on the dates of declaration, record, and payment.

Property Dividend Entries 1 Declaration Date Investments 24,000 Gain – Mkt. Sec. 24,000 2 Declaration Date Ret. Earnings 134,000 Prop. Div. Pay. 134,000 3 Payment Date Prop. Div. Pay 134,000 Investments 134,000

Stock Dividends w Issuance of more-shares dividend (no cash flow is involved) w Small stock dividends involve issues of less than 20% - 25% of outstanding stock w The accounting for small stock dividends is based on the fair market value of stock issued. w The accounting for large stock dividends (more than 20%-25% of outstanding stock) is based on the par value of stock issued.

Stock Dividends Types of Dividends Less than % shares More than % shares Use FMV at declaration Use par value Small Dividend Large dividend

Stock Dividends: Journal Entries Outstanding stock: 1,000 shares; $10 par Stock dividend: 10% FMV on date of declaration: $12

Small Stock Dividend Declaration Ret. Earnings 1,200 CS Distributable 1,000 APIC 200 Distribution CS Distributable 1,000 Common Stock 1,000 Stock dividend = 10% of 1,000 shares = 100 shares

Large Stock Dividends Outstanding stock: 3,000 shares; $10 par Stock dividend: 30% FMV on date of declaration: $12

Large Stock Dividends Declaration Ret. Earnings 9,000 CS Distributable 9,000 Distribution CS Distributable 9,000 Common Stock 9,000 Stock dividend = 30% of 3,000 shares = 900 shares

STOCK SPLITS  Par value of each share decreases  Number of shares increases  Total par value is unchanged  Total stockholders’ equity is unchanged  No formal journal entry [memo entry is made]

Stock Dividends and Stock Splits Par value of a share does not change Total number of shares increases Total stockholders’ equity does not change The composition of equity changes (less of retained earnings; more of stock) Stock dividends require journal entries Par value of a share does not change Total number of shares increases Total stockholders’ equity does not change The composition of equity changes (less of retained earnings; more of stock) Stock dividends require journal entries Par value of a share decreases Total number of shares increases Total stockholders’ equity does not change The composition of equity does not change (same amounts of stock and RE) Stock splits do not require journal entries Par value of a share decreases Total number of shares increases Total stockholders’ equity does not change The composition of equity does not change (same amounts of stock and RE) Stock splits do not require journal entries Stock DividendsStock Splits