1. Copyright © Cengage Learning. All rights reserved. Chapter 11 Contributed Capital

2. Copyright © Cengage Learning. All rights reserved. 11-2 Contributed Capital Refers to stockholders’ investments in a corporation. Is a major means of financing a corporation. Include new funds raised by issuing new common stock and preferred stock.

3. Copyright © Cengage Learning. All rights reserved. 11-3 Equity Financing A share of stock is a unit of ownership in a corporation. –A stock certificate is issued to the owner. –Stockholders can transfer their ownership at will.

4. Copyright © Cengage Learning. All rights reserved. 11-4 Par Value An arbitrary amount assigned to each share of stock. Usually bears little or no relationship to the market value or book value of shares. Constitutes the legal capital of the corporation.

5. Copyright © Cengage Learning. All rights reserved. 11-5 Initial Public Offering (IPO) Initial offering of capital stock by a company. Often, an underwriter is used for an IPO –Intermediary between the corporation and the investing public. –Guarantees the sale of the stock for a fee. Usually less than one percent of the selling price. The corporation records the net proceeds of the offering. –Amount paid by public less underwriter fees, legal and printing expenses and any other direct costs of the offering.

6. Copyright © Cengage Learning. All rights reserved. 11-6 Dividends Distributions to stockholders of a corporation’s assets that are generated by earnings. Stockholders receive assets in proportion to their ownership (or the number of shares they own). Dividends are not guaranteed to stockholders.

7. Copyright © Cengage Learning. All rights reserved. 11-7 Dividend Dates Declaration Date –Date on which the board of directors formally declares that a dividend will be paid. –Retained Earnings is debited; Dividends Payable is credited. Record Date –Date on which the ownership of the stock is determined. –No journal entry required. Date of Payment –Date on which the payment is made to stockholders of record. –Dividends Payable is debited; Cash is credited.

8. Copyright © Cengage Learning. All rights reserved. 11-8 Dividend Dates Between Record and Payment Date the Stock is said to be Ex Dividend If the holder of record sells the stock during this period, he will still receive the dividend.

9. Copyright © Cengage Learning. All rights reserved. 11-9 Repurchase of a company’s own stock off the open market. Reduces stockholders’ equity Increases return on equity Treasury Stock

10. Copyright © Cengage Learning. All rights reserved. 11-10 Components of Stockholders’ Equity Objective 2 –Identify the components of stockholders’ equity.

11. Copyright © Cengage Learning. All rights reserved. 11-11 Represents owners’ claims to a business Stockholders’ Equity Contributed Capital –Investments made by stockholders –Provides information about the corporation’s stock. Types; par value; number of shares authorized, issued, and outstanding Retained Earnings –Earnings since inception, less any losses, dividends, or transfers to contributed capital –Earnings reinvested in the corporation –Represent stockholders’ claims to the assets from earnings reinvested in the company. Treasury Stock –Shares of its own stock that the corporation has bought back on the open market.

12. Copyright © Cengage Learning. All rights reserved. 11-12 Contributed Capital Common stock –The company’s residual equity In case of liquidation, all creditors and usually preferred stockholders’ claims to the company’s assets rank ahead of common stockholders’ claims. –Carries voting rights A means of controlling the corporation. Preferred stock –Has preference over common stock in one or more ways.