13 Contributed Capital
Accounting School ·Zhongnan
University of Economics & Law
ntermediate
Accounting
I
中级会计学
1,Introduction
1) Private Corporations
(stock and nonstock;
open and closed)
2) Public corporations
3) Domestic corporations
4) Foreign corporations
universities,
hospitals,
churches
Available for
purchase by
the public
Intermediate Accounting 13 Contributed Capital
Types of Corporations
Continued
on next
slide
Changes in Equity Affecting
Assets or Liabilities
Transfers Between
Entity and Owners
Comprehensive
Income
Net
Income
Other
Comprehensive
Income
Revenues
and
Expenses
Gains and Losses
Included in Net
Income
Investments
by Owners
Distributions
to Owners
Intermediate Accounting 13 Contributed Capital
Continued
from
previous
slide
Changes in Equity Not
Affecting Assets or
Liabilities
Stock
Dividends
and Splits
Conversions of
Preferred Stock
to Common
Stock
Intermediate Accounting 13 Contributed Capital
2,Corporate Capital Structure
? The right to share in the profits when a
dividend is declared.
? The right to elect directors and to establish
corporate policies.
? The right (called a preemptive right) to
maintain a proportionate interest.
? The right to share in the distribution of the
assets of the corporation if it is liquidated.
Intermediate Accounting 13 Contributed Capital
Stockholders’ Rights
Basic Terminology
Authorized capital
stock—The
number of shares
of capital stock
that a corporation
may issue as stated
in its charter.
Issued capital
stock—The
number of shares
of capital stock
that a corporation
has issued to its
stockholders as of
a specific date.
Outstanding capital
stock—The number of
shares of capital stock
that a corporation has
issued to its
stockholders and that
are still being held by
them on a specific date.
Treasury stock—
The number of
shares of capital
stock that a
corporation has
issued to its
stockholders and
has reacquired but
not retired.
Subscribed capital
stock—The
number of shares
of capital stock
th t a corporation
will issue up the
completion of an
inst llment
purchase contract
with an investor.
Intermediate Accounting 13 Contributed Capital
Authorized
Capital Stock
Issued Capital Stock
* Outstanding capital
stock
* Treasury stock
Unissued Capital Stock
* Subscribed capital
stock
Intermediate Accounting 13 Contributed Capital
Basic Terminology
Legal Capital
Legal capital is the amount
of stockholders’ equity that
the corporation cannot
distribute to stockholders.
Intermediate Accounting 13 Contributed Capital
3,Issuance of Capital Stock
When only one class of
stock is issued,it is referred
to as common stock.
Intermediate Accounting 13 Contributed Capital
Issuance of Capital Stock
A corporation issues 500 shares of its $10
par common stock for $18.
Cash 9,000
Common Stock,$10 par 5,000
Additional Paid-in Capital
on Common Stock 4,000
Intermediate Accounting 13 Contributed Capital
A corporation issues 500 shares of its no-
par stock common stock with a stated
value of $10 for $18 per share.
Cash 9,000
Common Stock,$10 stated value 5,000
Additional Paid-in Capital
on Common Stock 4,000
Intermediate Accounting 13 Contributed Capital
Issuance of Capital Stock
A corporation issues 500 shares
of its no-par,no-stated value
common stock for $18 per share.
Cash 9,000
Common Stock,no-par (500
shares) 9,000
Intermediate Accounting 13 Contributed Capital
Issuance of Capital Stock
Stock Subscriptions
A corporation enters into a subscription contract with
several subscribers that calls for the purchase of
1,000 shares of $6 par common stock at a price of
$13 per share,A $3 per share down payment is
required,with the remaining $10 due in one month.
Cash 3,000
Subscription Receivable,Common
Stock 10,000
Common Stock Subscribed 6,000
Additional Paid-in Capital on
Common Stock 7,000
$6 x 1,000
Intermediate Accounting 13 Contributed Capital
The $10 per share final payment was received from
subscribers to 950 of the 1,000 shares.
Cash 9,500
Subscription Receivable:
Common Stock 9,500
Common Stock Subscribed 5,700
Common Stock,$6 par 5,700
950 x $6
Intermediate Accounting 13 Contributed Capital
Stock Subscriptions
1) Return to the subscriber the entire amount paid
in.
2) Return to the subscriber the entire amount paid
in,less any costs incurred to reissue the stock.
3) Issue to the subscriber a lesser number of
shares based upon the total amount of payment
received.
4) Require the forfeiture of all amounts paid in.
When a default occurs,the accounting is
determined by the relevant contract provisions,such
as--
Intermediate Accounting 13 Contributed Capital
Stock Subscriptions
The subscriber to the 50 remaining shares defaults
on the contract,The contract requires the forfeiture
of all amounts paid in (Option 4 in Slide 17).
Common Stock Subscribed 300
Additional Paid-in Capital on Common
Stock 350
Subscription Receivable:
Common Stock 500
Additional Paid-in Capital from
Subscription Default 150
50 x $6
50 x $7
50 x $10
Intermediate Accounting 13 Contributed Capital
Stock Subscriptions
Combined Sales of Stock
A corporation issues 100 packages of securities for
$82.80 per package,Each package consists of two
shares of $10 par common stock (market value,$16
per share) and one share of $50 par preferred stock
(market value,$60 per share).
Common Stock,$16 x 2 shares x 100 = $ 3,200
Preferred Stock,$60 x 1 share x 100 = 6,000
Total market value $9,200
Intermediate Accounting 13 Contributed Capital
A corporation issues 100 packages of securities for
$82.80 per package,Each package consists of two
shares of $10 par common stock (market value,$16
per share) and one share of $50 par preferred stock
(market value,$60 per share).
Common Stock,x $8,280 = $2,880$3,200$9,200
Preferred Stock,x $8,280 = 5,400$6,000$9,200
$8,280
Intermediate Accounting 13 Contributed Capital
Combined Sales of Stock
A corporation issues 100 packages of securities for
$82.80 per package,Each package consists of two
shares of $10 par common stock (market value,$16
per share) and one share of $50 par preferred stock
(market value,$60 per share).
Cash 8,280
Common Stock 2,000
Additional Paid-in Capital on Com,Stock 880
Preferred Stock,$50 par 5,000
Additional Paid-in Capital on Pref,Stock 400
Intermediate Accounting 13 Contributed Capital
Combined Sales of Stock
If only the separate market value of $16 per share for
the common stock is known,a corporation assigns a
$3,200 ($16 x 2 shares x 100 packages) of the
proceeds to the common stock,and allocates the
remainder to the preferred stock.
Cash 8,280
Common Stock 2,000
Additional Paid-in Capital on Com,Stock 1,200
Preferred Stock,$50 par 5,000
Additional Paid-in Capital on Pref,Stock 80
Intermediate Accounting 13 Contributed Capital
Combined Sales of Stock
Stock Splits
A stock split results in a
decrease in the par value per
share of stock accompanied
by a proportional increase in
the number of shares issued.
A stock split ordinarily is recorded
by a memorandum entry.
Intermediate Accounting 13 Contributed Capital
X Corporation issues a disproportionate stock split in
which the reduction in par is not proportionate to the
increase in the number of shares,Assume the par is
reduced from $10 to $4.
Common Stock,$10 par 600,000
Common Stock,$4 par 480,000
Additional Paid-in Capital from
Stock Split 120,00060,000 x $1060,00 x
2 x $4
Intermediate Accounting 13 Contributed Capital
Stock Splits
4,Preferred Stock Characteristics
? Preference as to dividends.
? Accumulation of dividends.
? Participation in excess dividends.
? Convertibility into common stock.
? Attachment of stock warrants (rights).
? Callability by the corporation.
? Redemption at a future maturity date.
? Preference as to assets upon liquidation of
the corporation.
? Lack of voting rights.
Intermediate Accounting 13 Contributed Capital
Cumulative Preferred Stock
J Corporation has outstanding 1,000 shares of 10%,
$100 par cumulative preferred stock and 10,000 shares
of $10 par common stock,The dividends are two
years in arrears when a $30,000 dividend is declared,
Preferred stockholders would receive all of it.
1,000 shares x $100 x 0.10 x 3 years = $30,000
Intermediate Accounting 13 Contributed Capital
Convertible Preferred Stock
Z Corporation originally issued 500 shares of $100
par convertible preferred stock at $120 per share,
Each share of preferred stock may be converted into
four shares of $20 par common stock.
Preferred Stock,$100 par 50,000
Additional Paid-in Capital on Preferred
Stock 10,000
Common Stock,$20 par 40,000
Additional Paid-in Capital from
Preferred Stock Conversion 20,000
Intermediate Accounting 13 Contributed Capital
Alternatively,assume each preferred share may be
converted into seven shares of common stock.
Preferred Stock,$100 par 50,000
Additional Paid-in Capital on Preferred
Stock 10,000
Retained Earnings 10,000
Common Stock,$20 par 70,000$70,000 – $60,000
7 x $500 x $20
Intermediate Accounting 13 Contributed Capital
Convertible Preferred Stock
Callable Preferred Stock
Callable preferred stock
may be retired under
specified conditions by a
corporation at its option.
Intermediate Accounting 13 Contributed Capital
Preferred Stock,$100 par 100,000
Additional Paid-in Capital on Preferred
Stock 10,000
Retained Earnings 2,000
Cash 112,000
Y Corporation has outstanding 1,000 shares of
$100 par callable preferred stock that were issued
at $110 per share and no dividends are in arrears,
The call price is $112 per share.
Intermediate Accounting 13 Contributed Capital
Callable Preferred Stock
Preferred Stock,$100 par 100,000
Additional Paid-in Capital on Preferred
Stock 10,000
Cash 105,000
Additional Paid-in Capital from
Recall of Preferred Stock 5,000
Y Corporation has outstanding 1,000 shares of
$100 par callable preferred stock that were issued
at $110 per share and no dividends are in arrears,
The call price is $105 per share.
Intermediate Accounting 13 Contributed Capital
Callable Preferred Stock
5,Contributed Capital Section
Stockholders’ Equity
Contributed Capital:
Preferred stock,$100 par (9%,cumulative,convertible,
10,000 shares authorized,4,300 shares issued and
outstanding) $ 430,000
Common stock,$5 par (80,000 shares authorized,
32,800 shares issued and outstanding) 164,000
Common stock subscribed,$5 par (3,600 shares at a
subscription price of $34 per share) 18,000
Common stock option warrants 23,000
Additional paid-in capital on preferred stock 107,500
Additional paid-in capital on common stock 590,400
Additional paid-in capital from conversion of p.s,10,100
Total Contributed Capital $1,343,000
Intermediate Accounting 13 Contributed Capital
The End