1. 7Apx--1 College Accounting Heintz & Parry 20 th Edition

2. Chapter 20 Corporations: Organization and Capital Stock

3. 1 Describe the characteristics, formation, and organization of a corporation.

4. CORPORATIONS Sell more goods and services in total than sole proprietorships and partnerships combined –There are fewer businesses organized as corporations Is a separate legal entity that exists separate from its owners –A corporation’s assets and liabilities are those of the business, not the owners –A corporation can own property, enter into contracts, and incur debt in its own name –It can sue and be sued

5. CHARACTERISTICS LIMITED LIABILITY OF OWNERS Owners of a corporation generally have no personal liability for the debts of the corporation. Major advantage of corporations

6. CHARACTERISTICS TRANSFERABLE OWNERSHIP UNITS Owner’s equity in a corporation is called capital stock. Capital stock is divided into shares that can be transferred from one person to another without the consent of the other owners and without disturbing the corporation’s normal activities.

7. CHARACTERISTICS EASE OF RAISING CAPITAL The limited liability and transferable ownership characteristics are attractive to investors. Therefore, a corporation generally can obtain capital by selling additional shares of stock.

8. CHARACTERISTICS NO MUTUAL AGENCY Unlike partnerships, in a corporation individual owners do not have the power to act as an agent of the business.

9. CHARACTERISTICS UNLIMITED LIFE The corporation’s charter states the life as either perpetual or renewable. Changes in ownership have no effect on the life of a corporation.

10. CHARACTERISTICS TAXATION OF EARNINGS Corporations must pay income taxes. In addition, the corporation’s owners pay personal income tax on the dividends they receive. This results in “double taxation.” Disadvantage

11. CHARACTERISTICS GOVERNMENT REGULATION Activities of the corporation are regulated by federal, state, and local laws. These laws may restrict the corporation’s ownership of real property, the purchase of its own stock, and the retention of its earnings. Disadvantage

12. CORPORATION States have the power to create corporations –Incorporators file an application with the state –Once the application is approved, the charter, also called a certificate of incorporation, is prepared, stating the: Name of the corporation Location of the principal office Purpose of the business Description of the capital stock Names and addresses of the incorporators

13. TERMINOLOGY Bylaws – Provide general guidelines for conducting the business Stockholders – Owners in a corporation Stock certificate – A form that shows the name of the stockholder and the number of shares owned Board of directors – Elected by stockholders; determine corporate policies Officers – Manage the corporation and are responsible to the board

14. CORPORATE ORGANIZATION OWNERS ( Stockholders ) Who elect theWho appoint the OFFICERS ( President, Vice President, Secretary, Treasurer ) Who manage the EMPLOYEES BOARD OF DIRECTORS

15. ORGANIZATION COSTS Incorporation Fees Attorneys’ Fees Promotion Expenses EXAMPLES:

16. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GENERAL JOURNAL DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Organization Expenses8,000 Accounts Payable (or Cash) Organization costs are expensed when incurred and reported under “Other expenses” on the income statement.

17. 2 Describe stockholders’ equity and the types of capital stock, and compute dividends on preferred and common stock.

18. EQUITY ACCOUNTS SOLE PROPRIETORSHIP Owner, Capital Owner, Drawing Two equity accounts

19. EQUITY ACCOUNTS SOLE PROPRIETORSHIP Owner, Capital Owner, Drawing All equity transactions eventually affect the one capital account. 1. Investments 2. Net income 2. Net loss 3. Drawing 4. Closing

20. EQUITY ACCOUNTS PARTNERSHIP Partner A, CapitalPartner A, Drawing 1. Investments 2. Net income 2. Net loss3. Drawing 4. Closing Partner B, Capital 1. Investments 2. Net income 2. Net loss 4. Closing Partner B, Drawing 3. Drawing 4. Closing A partnership is similar to a sole proprietorship but has multiple capital and drawing accounts.

21. EQUITY ACCOUNTS CORPORATION Capital Stock Additional Paid-In Capital 1. Investments Only records investments by owners

22. EQUITY ACCOUNTS CORPORATION Capital Stock Additional Paid-In Capital 1. Investments Retained Earnings 1. Investments A separate account which records the earnings of the corporation 2. Net income2. Net loss

23. EQUITY ACCOUNTS CORPORATION Capital Stock Additional Paid-In Capital 1. Investments Retained Earnings 1. Investments Corporations make a distinction between capital invested by the owners (paid-in capital) and earnings retained in the business. 2. Net income2. Net loss

24. EQUITY ACCOUNTS CORPORATION Capital Stock Additional Paid-In Capital 1. Investments Retained Earnings 1. Investments Dividends Drawings are now called Dividends and are closed to Retained Earnings. 2. Net income2. Net loss 4. Closing 3. Dividends

25. CAPITAL STOCK Authorized stock – The total number of shares the corporate charter authorizes a corporation to issue Issued stock – Stock that has been sold and issued Treasury stock – Stock that has been bought back Outstanding stock – Number of shares in the hands of stockholders

26. STOCK VALUES Par Value Dollar amount printed on stock certificate Recorded in the capital stock account Market Value Amount for which the stock can be sold No-Par Stock No dollar amount printed on it Amount assigned by board of directors Stated Value

27. COMMON STOCK If a corporation has only one type of stock, it is called “common stock” Gives its owner the right to: –Vote at stockholder meetings –Share in earnings distributions –Purchase additional shares in proportion to the owner’s present holding if more shares are issued Called the “preemptive right” –Share in the assets if the corporation liquidates

28. PREFERRED STOCK Type of stock that gives its owners certain rights and privileges superior to those of common stockholders –Example: The right to receive dividends before common stockholders Dividends are stated as a dollar amount or a percent of par value Does not give the same rights as common stock –Example: Preferred stockholders do not have the right to vote

29. DIVIDEND ALLOCATION EXAMPLE: Pref Company has 2,000 shares of $50 par, $4 preferred stock, and 2,000 shares of $10 par common stock outstanding. The amount available for dividends for the year is $14,000. Preferred Stockholders Common Stockholders $8,000 $4 dividend for each share of preferred stock (2,000 shares)

30. DIVIDEND ALLOCATION EXAMPLE: Pref Company has 2,000 shares of $50 par, $4 preferred stock, and 2,000 shares of $10 par common stock outstanding. The amount available for dividends for the year is $14,000. Preferred Stockholders Common Stockholders $8,000 $14,000Available for dividends – 8,000 For preferred stockholders $ 6,000 Leftover for the common shareholders $6,000

31. DIVIDEND ALLOCATION EXAMPLE: Pref Company has 2,000 shares of $50 par, $4 preferred stock, and 2,000 shares of $10 par common stock outstanding. The company declared no dividends in year 1 and $22,000 in year 2. Preferred Stockholders Common Stockholders Depends on the type of preferred stock… cumulative or noncumulative Should we go back and give the preferred stockholders the dividend for year 1?

32. DIVIDEND ALLOCATION EXAMPLE: Pref Company has 2,000 shares of $50 par, $4 preferred stock, and 2,000 shares of $10 par common stock outstanding. The company declared no dividends in year 1 and $22,000 in year 2. Preferred Stockholders Common Stockholders Cumulative preferred stock accumulates unpaid dividends from year to year. $ 8,000 Year 1 8,000 Year 2

33. DIVIDEND ALLOCATION EXAMPLE: Pref Company has 2,000 shares of $50 par, $4 preferred stock, and 2,000 shares of $10 par common stock outstanding. The company declared no dividends in year 1 and $22,000 in year 2. Preferred Stockholders Common Stockholders Preferred stockholders receive both years’ dividends before common stockholders receive any dividends. $ 8,000 Year 1 8,000 Year 2 $16,000 $6,000 $22,000 – 16,000

34. DIVIDEND ALLOCATION EXAMPLE: Pref Company has 2,000 shares of $50 par, $4 preferred stock, and 2,000 shares of $10 par common stock outstanding. The company declared no dividends in year 1 and $22,000 in year 2. Preferred Stockholders Common Stockholders Noncumulative preferred stock does not carry dividends from year to year. $8,000 Year 2 $14,000 $22,000 – 8,000

35. PARTICIPATING PREFERRED STOCK Gives owners the right to share with common stock owners in dividends in excess of a stated dividend rate –Rare to find anymore Nonparticipating preferred stock limits the preferred stock owners to the stated dividend rate

36. 3 Account for capital stock transactions.

37. CAPITAL STOCK TRANSACTIONS Corporations issue capital stock in exchange for cash and noncash assets. –Issuance for cash is the most common transaction –Stock may be issued: At par At a premium At a discount Let’s look at some examples.

38. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GENERAL JOURNAL DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Cash50,000 Common Stock Linc Corp. issues 10,000 shares of $5 par common stock at par for $50,000 cash. Issued common stock at par

39. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GENERAL JOURNAL DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Cash60,000 Common Stock What if the stock had been issued for $60,000 cash?

40. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GENERAL JOURNAL DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Cash60,000 Common Stock Shares issued  Par value (10,000 shares  $5 par value) 50,000

41. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GENERAL JOURNAL DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Cash60,000 Common Stock Extra received above par value 50,000 Paid-In Capital in Excess of Par—Common Stock10,000 Issued common stock at a premium

42. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GENERAL JOURNAL DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Cash96,000 4,000 Preferred Stock Linc Corp. issues 2,000 shares of $50 par, 8% preferred stock for $96,000 cash. Issued preferred stock at Discount on Preferred Stock 100,000 a discount

43. DISCOUNTS Seldom used because: –Firms generally set very low par values –The purchaser is liable to the corporation’s creditors for the difference between the par value and the amount paid –Illegal in many states

44. STATED VALUE STOCK EXAMPLE: Stat Company issued 5,000 shares of no-par common stock with a stated value of $10 per share for $70,000 cash. Stock may have a stated value instead of a par value. Accounting for stated value is very similar to par value, but with a few account title changes.

45. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GENERAL JOURNAL DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Cash70,000 Common Stock Shares  Stated value per share 50,000

46. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GENERAL JOURNAL DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Cash70,000 Common Stock50,000 Paid-In Capital in Excess of Stated Value—Common Stk.20,000 Slight change in the title of the account

47. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GENERAL JOURNAL DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Cash70,000 Common Stock EXAMPLE: Noll Company issued 5,000 shares of no-par common stock for $70,000. 70,000

48. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GENERAL JOURNAL DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Cash70,000 Common Stock Common Stock is credited for entire amount received. A paid-in capital in excess of par account is not used. 70,000

49. STOCK ISSUED FOR NONCASH ASSETS Guideline: –The assets received are recorded at the fair market value of the assets or of the stock, whichever can be more clearly determined

50. STOCK ISSUED FOR NONCASH ASSETS EXAMPLE: Linc Corp. issues 5,000 shares of $5 par common stock for a truck. It is hard to determine the market value of the stock, but the truck has a known market value of $30,000.

51. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GENERAL JOURNAL DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Truck30,000 Common Stock The truck is recorded at its fair market value. Common Stock is recorded at par. Paid-In Capital is credited for the difference. 25,000 Paid-In Capital in Excess of Par—Common Stock5,000

52. STOCK SUBSCRIPTIONS An agreement in which a buyer (subscriber) contracts to buy shares of stock from a corporation at a specific price –The subscriber generally agrees to pay the amount in full on a specified date or in installments –The stock is not issued until the subscriber makes the full payment

53. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GENERAL JOURNAL DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Stock Subscriptions Receivable60,000 Common Stock Subscribed EXAMPLE: Linc Corp. received subscriptions for 10,000 shares of its $5 par common stock for $60,000. 50,000 Paid-In Capital in Excess of Par—Common Stock10,000

54. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GENERAL JOURNAL DATEDESCRIPTION PRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Stock Subscriptions Receivable60,000 Common Stock Subscribed EXAMPLE: Partial payment is received. 50,000 Paid-In Capital in Excess of Par—Common Stock10,000 Cash Stock Subcriptions Receivable 40,000

55. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GENERAL JOURNAL DATEDESCRIPTION PR DEBITCREDIT 12 13 14 15 16 17 18 19 20 21 22 EXAMPLE: Final payment is received. Cash Stock Subscriptions Receivable 20,000

56. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GENERAL JOURNAL DATEDESCRIPTIONPRDEBITCREDIT 12 13 14 15 16 17 18 19 20 21 22 Stock is issued. Common Stock Subscribed50,000 Common Stock50,000

57. TREASURY STOCK When a company buys back its own stock, it’s called “treasury stock” When treasury stock is purchased: –Treasury Stock is debited for the amount paid regardless of par value –Treasury stock account is a contra- stockholders’ equity account

58. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GENERAL JOURNAL DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Common Treasury Stock18,000 Cash EXAMPLE: Linc Corp purchases 3,000 shares of its $5 par common stock for $6 per share, a total of $18,000. 18,000

59. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GENERAL JOURNAL DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Common Treasury Stock18,000 Cash EXAMPLE: Linc Corp sells 2,000 of the 3,000 treasury shares for $7 per share, a total of $14,000. 18,000 Cash14,000 Common Treasury Stock

60. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GENERAL JOURNAL DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Common Treasury Stock18,000 Cash 2,000 shares  $6 per share 18,000 Cash14,000 Common Treasury Stock12,000

61. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GENERAL JOURNAL DATEDESCRIPTIONPRDEBITCREDIT 1 2 3 4 5 6 7 8 9 10 11 Common Treasury Stock18,000 Cash18,000 Cash14,000 Common Treasury Stock12,000 Paid-In Capital from Sale of Treasury Stock2,000 Paid-In Capital from Sale of Treasury Stock is credited for the difference.

62. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GENERAL JOURNAL DATEDESCRIPTIONPRDEBITCREDIT 12 13 14 15 16 17 18 19 20 21 22 Cash Paid-In Capital from Sale 5,500 500 Common Treasury Stock6,000 of Treasury Stock Linc sells the remaining 1,000 treasury shares for $5.50 per share, a total of $5,500. In this case, Paid-In Capital from Sale of Treasury Stock is debited.

63. REVIEW OF NEW ACCOUNTS ACCOUNT NAME: TYPE OF ACCOUNT: Common Stock and Preferred Stock Stockholders’ Equity PURPOSE: Credited for the par or stated value (if stated). If no-par or stated value, credited for the amount received for stock issued BALANCE SHEET PRESENTATION: Part of paid-in capital

64. REVIEW OF NEW ACCOUNTS ACCOUNT NAME: TYPE OF ACCOUNT: Paid-In Capital in Excess of Par (or Stated Value)— Common (or Preferred) Stock Stockholders’ Equity PURPOSE: Credited for the amount by which the issue price exceeds the par or stated value (not used when issuing no-par stock) BALANCE SHEET PRESENTATION: Addition to paid-in capital

65. REVIEW OF NEW ACCOUNTS ACCOUNT NAME: TYPE OF ACCOUNT: Discount on Common (or Preferred) Stock Contra-Stockholders’ Equity PURPOSE: Debited for the amount by which the par or stated value exceeds the issue price BALANCE SHEET PRESENTATION: Deduction from paid-in capital

66. REVIEW OF NEW ACCOUNTS ACCOUNT NAME: TYPE OF ACCOUNT: Common (or Preferred) Stock Subscriptions Receivable Contra-Stockholders’ Equity PURPOSE: Debited for the subscription price of stock BALANCE SHEET PRESENTATION: Deduction from the total of paid-in capital and retained earnings

67. REVIEW OF NEW ACCOUNTS ACCOUNT NAME: TYPE OF ACCOUNT: Common (or Preferred) Stock Subscribed Stockholders’ Equity PURPOSE: Credited for the par or stated value (if stated) of the stock subscribed. If no-par or stated value, credited for the amount of stock subscription BALANCE SHEET PRESENTATION: Addition to paid-in capital

68. REVIEW OF NEW ACCOUNTS ACCOUNT NAME: TYPE OF ACCOUNT: Treasury Stock— Common and Preferred Contra-Stockholders’ Equity PURPOSE: Debited for the cost of stock purchased BALANCE SHEET PRESENTATION: Deduction from the total of paid-in capital and retained earnings

69. REVIEW OF NEW ACCOUNTS ACCOUNT NAME: TYPE OF ACCOUNT: Paid-In Capital from Sale of Treasury Stock Stockholders’ Equity PURPOSE: Credited for the excess of the selling price over cost. Debited for the excess of cost over the selling price BALANCE SHEET PRESENTATION: Addition to paid-in capital

70. 4 Prepare the stockholders’ equity section of a corporation balance sheet.

71. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Paid-In Capital and Retained Earnings Equity is separated by source: Paid-In Capital = Amounts contributed by owners Retained Earnings = Accumulated, undistributed earnings

72. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Paid-in capital: Preferred stock, 7%, $10 par (20,000 shares auth., 14,000 shares issued) Preferred stock subscribed (6,000 shares) $140,000 60,000$200,000 Preferred stock is listed first because of its preferred claim to dividends and assets.

73. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Paid-in capital: Preferred stock, 7%, $10 par (20,000 shares auth., 14,000 shares issued) Preferred stock subscribed (6,000 shares) Common stock, no par (40,000 shares auth., 16,300 shares issued) Common stock subscribed (4,000 shares) Additional paid-in capital: Paid-in capital in excess of par—preferred Paid-in capital from sale of treasury stock Total paid-in capital $140,000 60,000$200,000 $163,000 40,000203,000 $56,000 60056,600 $459,600 Paid-in capital is further separated by source… Preferred, common, subscriptions, etc.

74. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Paid-in capital: Preferred stock, 7%, $10 par (20,000 shares auth., 14,000 shares issued) Preferred stock subscribed (6,000 shares) Common stock, no par (40,000 shares auth., 16,300 shares issued) Common stock subscribed (4,000 shares) Additional paid-in capital: Paid-in capital in excess of par—preferred Paid-in capital from sale of treasury stock Total paid-in capital $140,000 60,000$200,000 $163,000 40,000203,000 $56,000 60056,600 $459,600 Stock characteristics are indicated: Dividend rate for preferred par or no-par value

75. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Paid-in capital: Preferred stock, 7%, $10 par (20,000 shares auth., 14,000 shares issued) Preferred stock subscribed (6,000 shares) Common stock, no par (40,000 shares auth., 16,300 shares issued) Common stock subscribed (4,000 shares) Additional paid-in capital: Paid-in capital in excess of par—preferred Paid-in capital from sale of treasury stock Total paid-in capital Retained earnings $140,000 60,000$200,000 $163,000 40,000203,000 $56,000 60056,600 $459,600 60,000 $519,600 Retained earnings is listed after all paid-in capital.

76. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Paid-in capital: Total paid-in capital Retained earnings Less: Preferred stock subscriptions receivable Total stockholders’ equity $459,600 60,000 $519,600 22,000 $447,600 Number of shares authorized, subscribed, issued, and held as treasury are indicated. Common treasury stock (2,000 shares at cost) Common stock subscriptions receivable $20,000 30,000 72,000

77. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Paid-in capital: Total paid-in capital Retained earnings Less: Preferred stock subscriptions receivable Total stockholders’ equity $459,600 60,000 $519,600 22,000 $447,600 Common treasury stock (2,000 shares at cost) Common stock subscriptions receivable $20,000 30,000 72,000 Preferred and common stock subscriptions receivable are subtracted from total paid-in capital and retained earnings.

78. ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Paid-in capital: Total paid-in capital Retained earnings Less: Preferred stock subscriptions receivable Total stockholders’ equity $459,600 60,000 $519,600 22,000 $447,600 Common treasury stock (2,000 shares at cost) Common stock subscriptions receivable $20,000 30,000 72,000 Treasury stock is subtracted from total paid-in capital and retained earnings.