Characteristics of Corporations Allow large amounts of capital to be raised Allow for easy transfer of ownership Limited liability of shareholders Dual taxation is a problem Can be public or private sector with either stock or non-stock private corporations (not for profits)

Corporate Capital (Stockholders’ Equity) Contributed capital Capital stock Additional paid in capital Retained earnings

Issuing stock Value at fair value of what is given up or received Par value into capital stock account Excess into Additional paid in capital Ex 2

Other Ways of Issuing Stock Stock sold on subscription is sold in installments Use common stock subscribed account until paid in full Stock sold with other items securities should be assigned to the accounts based on relative fair values Ex 6

Stock Issuance Stock issued in exchange for noncash assets should be valued at the fair value of whichever is more readily evident Cost of issuing stock should be deducted from proceeds credited to additional paid in capital

Treasury Stock Reasons for buying treasury stock Treasury stock is not an asset and transactions in treasury stock should not create gains and losses Can use the cost or par value method

Cost Method: Debit cost to treasury stock when acquired When resold, credit “gains” to PIC – T/S, and debit “losses” first to PIC – T/S then RE If retire, remove original proceeds and treasury stock, balance with debit to RE or credit to PIC – retirement of treasury stock Show on balance sheet as a reduction of SE

Par Value Method Remove original issue PIC when purchased, put in treasury stock at par, and debit goes to RE and credit to PIC – TS When reissuing treat as a new issue Retire against the common stock account Show on balance sheet after C/S account Ex 10, Pb 6

Preferred Stock Terms: Cumulative Participating Convertible Callable (option of issuer) Redeemable (option of holder) Ex 13, Pb 11