1 Contributed Capital

2  Why are we studying Stockholders’ Equity Owners Investments Residual Equity Required Reconciliation Statement Expanded to included Non-Equity Transactions  Increase/Decrease in security values  Foreign currency gains and losses

3  Equity_Book v Market Value BV determined by accounting rules Market value determined by investors perception of growth, dividend or other potential market opportunities  Competitors products  Net income  Cash flows  Regulatory climate

4 Characteristic of Corporate Form  Forms of Business Operations Proprietorship Partnership Corporations

5 FormEase of raising capital Double Taxation LifeLiability Proprietorship Not easyNolimited unlimited PartnershipNot easyNolimited unlimited CorporationYes unlimitedlimited

6 Types of Corporations  Private Open Closed  Public  Domestic  Foreign

7  Charted in one State Domestic v Foreign Corporation NYSE over 2/3 Delaware Corporations Board fiduciary responsibility to shareholders Officers are Agents of Corporation

8

9  Ownership represented by Shares Right to share proportionally in  Profit and loss  Management –election of directors  Assets upon liquidation  New issue proportionally—(preemptive right)

10  Types of Stock, Characteristics  Common Voting (Google, Microsoft, Coke) Non-voting  Preferred Dividend preferences Liquidation preferences

11 Components of Shareholders Equity  Capital Stock  Additional Paid in Capital  Other changes in Assets Accounts Comprehensive Income

12 Procedure for Issuing Stock  Issue for Cash At par, above par, below par No par, stated value  Issue Common stock in combination with preferred stock or bond.  Issue stock for non cash transaction Services, equipment

13 Basic Terminology  Authorized Capital Stock  Issued capital Stock  Outstanding capital Stock  Treasury Stock  Subscribed capital Stock

14 Terminology  Legal capital  Par value Stock  No Par Stock  Stated value

15 Sale At Par Cash $18 x Common Stock 500 x $ Additional PIC 500 x $84000 Cash $18 x Additional PIC 500 x $84000

16 Sale at Stated Value Cash $18 x Common Stock $10 stated value 5000 Additional PIC 500 x $84000

17 No Stated value Cash $18 x Common Stock no par 500s 9000

18 Package-Unit – Lump Sale  Issue stock Lump Sum Sale Proportional method >  Market value of each security is known Incremental Method >  Market value of one or more securities is unknown

19 Allocation of Package proceeds  Allocation to Common: (FMV common/(FMV common+FMV Other))*Proceeds (FMV Other /(FMV common+FMV Other))*Proceeds Other = Preferred Stock or Bond Proceeds = amount realized from sales of all packages E16-2 Common and Preferred E16-3 Common and a Bond

20 Non-Monetary Exchange E16-4  Stock issued for non-cash transaction  Use fair value more readily determinable Is stock widely traded Is the appraisal independent  Acquire a patent>

21  Cost of Issuing Stock Debit additional paid in capital Reduction of proceeds  Note Receivable arising from sale of stock should be classified as contra- equity account You can not have a receivable from yourself. Enron inflated assets and equity to create watered down stock

22 Stock Split E16-6  Proportional Multiply split time # of shares outstanding Divide split amount by par value Memo entry  Nonproportional Journal entry is required

23 Nonproportional stock Split  Debit Common stock for pre-split shares times pre-split par value  Credit common stock for pre-split shares, times split, times new par value assigned  Debit or credit additional PIC for balance