1. Contributed Capital
Accounting for stock including stock compensation plans and Stock appreciation rights

2. Corporate form Legal entity of a particular state
Different forms -- open (publicly traded), closed (privately held), public, nonstock not-for-profit
Legal entity of particular state
Articles of incorporation (charter)
Rights – enter into contracts, property, continue indefinitely
Responsibilities --State and federal income taxes, proper use of capital from owners
Stock certificates – authorized, issued, outstanding
Legal capital – to protect creditors, amount of shareholder’s equity that can’t be distributed, often par or stated value of shares issued
Retained Earnings – positive balance at least equal to a dividend is needed to give a dividend
Par value –not market value, established in articles of incorporation, on stock certificate, often set low
Stated value – per share of no-par stock established by board of directors in many states allowing no-par stock
Legal entity of a particular state

3. Common Stock Characteristics
Ownership rights include dividends, director elections, corporate policy
Preemptive right
Liquidation right
Exceptions –modified or waived in some circumstances or for some classes of stock (class A and B different voting rights)
In exchange for cash and other assets and services received
to retire debt, convert securities, compensatory share option plan
Common Stock Characteristics

4. Preferred stock -- characteristics
Dividend preference – before common stock, cumulative
Liquidation preference – after creditors, before common stockholders
Set dividend amount % of par
Participating dividends
Detachable warrants
Convertible features
Callable
No voting rights
Preferred stock -- characteristics

5. Treasury stock – repurchase of own stock shares
Cost method versus par value method
Treasury stock – contra stockholder’s equity
Treasury stock……………………….XX
cash…………………………………..…..XX
Reissue treasury stock above cost (cost method)
Cash…………………………………..……XX
Additional paid in capital TS………..…….XX
Treasury stock……………………………….….XX
Reissue treasury stock below cost (cost method)
Cash……………………………………..…XX
Additional paid in capital TS (or RE’s)……….XX
Treasury stock…………………………………….XX
reasons --to reduce shares available to hostile shareholders, use for stock dividend, bonus or option plans, reduce cash no longer needed, reaction to undervalued shares, needed to acquire other companies

6. Compensation share plans for employees
Compensatory share option plans
Stock appreciation rights
Valued using pricing model (Black-Scholes-Merton) fair value method
Measured at grant date & not updated
Benefits in stock usually (or cash) and employee pays an option price for stock
Set service period to vest
Compensation =fair value*options to vest
Compensation spread out over service period, stops at end of service period
Fixed compensatory share option plan
Performance-based share option plan
Compensation expense…….XX
Paid-in-capital from share options…………………………………….…XX
Paid-in-capital from options….XX
Cash………………………………………XX
Common stock at par……..…XX
Additional paid-in-capital…..XX
Compensation spread out over service period
Set service period to vest
Compensation spread out over service period and exercise period, continues until exercised
Benefits in cash or stock
Fair Value=current market price of stock less option price (original market value)
Compensation expense………XX
SAR compensation payable………XX
Compensation expense……….XX
SAR compensation payable….XX
Cash…………………………………………………XX
If price drops below option price:
SAR compensation payable……….XX
Compensation expense…………………XX
Compensation share plans for employees