Contributed Capital

1. Contributed Capital

2. Why are we studying Stockholders’ Equity • Owners Investments • Residual Equity • Required Reconciliation Statement • Expanded to included Non-Equity Transactions • Increase/Decrease in security values • Foreign currency gains and losses

3. Equity_Book v Market Value • BV determined by accounting rules • Market value determined by investors perception of growth, dividend or other potential market opportunities • Competitors products • Net income • Cash flows • Regulatory climate

4. Characteristic of Corporate Form • Forms of Business Operations • Proprietorship • Partnership • Corporations

6. Types of Corporations • Private • Open • Closed • Public • Domestic • Foreign

7. Charted in one State • Domestic v Foreign Corporation • NYSE over 2/3 Delaware Corporations • Board fiduciary responsibility to shareholders • Officers are Agents of Corporation

9. Ownership represented by Shares • Right to share proportionally in • Profit and loss • Management –election of directors • Assets upon liquidation • New issue proportionally—(preemptive right)

10. Types of Stock, Characteristics • Common • Voting (Google, Microsoft, Coke) • Non-voting • Preferred • Dividend preferences • Liquidation preferences

11. Components of Shareholders Equity • Capital Stock • Additional Paid in Capital • Other changes in Assets Accounts • Comprehensive Income

12. Procedure for Issuing Stock • Issue for Cash • At par, above par, below par • No par, stated value • Issue Common stock in combination with preferred stock or bond. • Issue stock for non cash transaction • Services, equipment

13. Basic Terminology • Authorized Capital Stock • Issued capital Stock • Outstanding capital Stock • Treasury Stock • Subscribed capital Stock

14. Terminology • Legal capital • Par value Stock • No Par Stock • Stated value

15. Sale At Par

16. Sale at Stated Value

17. No Stated value

18. Package-Unit – Lump Sale • Issue stock Lump Sum Sale • Proportional method > • Market value of each security is known • Incremental Method > • Market value of one or more securities is unknown

19. Allocation of Package proceeds • Allocation to Common: • (FMV common/(FMV common+FMV Other))*Proceeds • (FMV Other /(FMV common+FMV Other))*Proceeds • Other = Preferred Stock or Bond • Proceeds = amount realized from sales of all packages • E16-2 Common and Preferred • E16-3 Common and a Bond

20. Non-Monetary Exchange E16-4 • Stock issued for non-cash transaction • Use fair value more readily determinable • Is stock widely traded • Is the appraisal independent • Acquire a patent>

21. Cost of Issuing Stock • Debit additional paid in capital • Reduction of proceeds • Note Receivable arising from sale of stock should be classified as contra-equity account • You can not have a receivable from yourself. Enron inflated assets and equity to create watered down stock

22. Stock Split E16-6 • Proportional • Multiply split time # of shares outstanding • Divide split amount by par value • Memo entry • Nonproportional • Journal entry is required

23. Nonproportional stock Split • Debit Common stock for pre-split shares times pre-split par value • Credit common stock for pre-split shares, times split, times new par value assigned • Debit or credit additional PIC for balance