Chapter 12 Acquiring Additional Capital for a Corporation

Last chapter we were talking and dealing with starting up the corporation and generating capital from the original stockholders. Now we begin to sell the other stocks both common and preffered to people who would like to buy stocks from us and our company. Last chapter we were talking and dealing with starting up the corporation and generating capital from the original stockholders. Now we begin to sell the other stocks both common and preffered to people who would like to buy stocks from us and our company.

Issuing preferred stock at Par Value Received cash from Brenda Henson for 800 shares of $ par value preferred stock at $ per share, $80,000. Receipt No. 117 Received cash from Brenda Henson for 800 shares of $ par value preferred stock at $ per share, $80,000. Receipt No. 117

Three ways to sell stock For Par Value For Par Value For more than par-value For more than par-value For less than par-value For less than par-value

Issuing stock for more than par- value April 6 th. Received cash from Adam Kellogg for 300 shares of $ par value preferred stock at $ per share, $36,000. Receipt No. 127

When we sell stock for less than par value we sell that stock at a discount of par value. When we sell stock for less than par value we sell that stock at a discount of par value. August 9. received cash from Hazel Loach for 500 shares of $ par value preferred stock at $90.00 per share, $45,000. Receipt No. 173

Issuing preferred stock for assets other than cash. October 7. Received office equipment from Steen McGee at an agreed value of $12,000 for 100 shares of $ par value preferred stock. Memo No. 246

Issuing Common Stock with No Par Value July 8. received cash from Elizabeth Griffin for 1,000 shares of no-par value common stock at $14.00 per share, $14,000. Receipt No. 148

Issuing Common Stock with a Stated Value October 10. Received cash from Alice Blake for 100 shares of $10.00 stated value common stock at $12.00 per share, $1,200. Receipt No. 181

Treasury Stock Transactions Treasury is simply stock that the corporation has reacquired from stockholders. Treasury is simply stock that the corporation has reacquired from stockholders. A corporation usually intends to use the treasury stock for a specific purpose. A corporation usually intends to use the treasury stock for a specific purpose. Treasury stock does not give you any privileges like regular stock does. Treasury stock does not give you any privileges like regular stock does. It does decrease the number of shares outstanding if reacquired. It does decrease the number of shares outstanding if reacquired.

Buying Treasury Stock October 24. Paid cash to Francis Burns for 500 shares of $10.00 stated value common stock at $12.00 per share $6,000. check no. 502

Selling Treasury Stock for Original Cost November 21. Received cash from Lisa Vance for 100 shares of treasury stock at $12.00 per share, $1,200. treasury stock was originally bought by LampLight on October 24 at $12.00 per share. Receipt No. 205

Selling Treasury Stock for more than Original Cost November 25. received cash from Mary Long for 200 shares of treasury stock at $15.00 per share, $3,000. Treasury stock was bought on October 24 at $12.00 per share. Receipt No. 216.

Selling Treasury Stock for less than original cost December 22, Received cash from Frank Demetz for 50 shares of treasury stock at $10.00 per share, $ treasury stock was originally bought October 24 at $12.00 per share. Receipt No. 229

Capital may come from three sources 1. Using Retained Earnings 2. Selling Additional Capital Stock 3. Borrowing the funds

Bonds Payable 12-3 Bond Bond A printed long-term promise to pay interest at stated intervals. A printed long-term promise to pay interest at stated intervals. Bonds and notes payable are very similar, except bonds run for 5,10, or 20 years. They also tend to be for larger sums of money. Bonds and notes payable are very similar, except bonds run for 5,10, or 20 years. They also tend to be for larger sums of money. Bond Issue Bond Issue A group of bonds representing the total amount of the loan is called a “bond issue” A group of bonds representing the total amount of the loan is called a “bond issue” A corporation usually sells an entire bond issue to a securities dealer who sells individual bonds to the public. A corporation usually sells an entire bond issue to a securities dealer who sells individual bonds to the public.

Issuance of a bond July Received cash for the face value of a 5-year, 12%, $1,000 par value bond issue, $250,000. Receipt no 246 July Received cash for the face value of a 5-year, 12%, $1,000 par value bond issue, $250,000. Receipt no 246

Paying the interest on a bond As the bond matures, a yearly interest payment is paid to a trustee, who then divides up the interest to the bond holders. 250,000 x 12% = 30,000 per year July , Paid cash to bond trustee for annual interest on bond issue, $30,000 Check No. 562

Bond Sinking Fund An amount set aside to pay a bond issue when due. An amount set aside to pay a bond issue when due. Used to assure the bond holders that the people can pay the issue off when due they set money aside in an account called the bond sinking fund. Used to assure the bond holders that the people can pay the issue off when due they set money aside in an account called the bond sinking fund. July 1, 2001 Paid cash to bond trustee for annual deposit to bond sinking fund, $50,000 Check No. 563.

Depositing Cash to sinking fund and recording income earned. The trustee takes the bond sinking fund money and invests it. The interest is also used to help pay off the loan, by making the yearly loan payments a little smaller. The trustee takes the bond sinking fund money and invests it. The interest is also used to help pay off the loan, by making the yearly loan payments a little smaller. Let say that the interest earned by the investment was $2000. That makes the annual payment only $48,000 instead of $50,000. Let say that the interest earned by the investment was $2000. That makes the annual payment only $48,000 instead of $50,000. July paid cash to bond trustee for annual deposit to bond sinking fund, $48,000, and recorded interest earned on bond sinking fund, $2000. check no 610.

Retiring/Paying off the bond issue Sometimes bond issues mature on different dates. These are called serial bonds. July 1, 2004 Received notice from bond trustee that bond issue was retired using bond sinking fund, $250, Memorandum No. 600

Problems 12-1,2,3,4, Problems 12-1,2,3,4,