acct ch 16 notes

acct ch 16 notes - Accounting Chapter 16 Capital Stock and...

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Accounting Chapter 16 Capital Stock and Stockholder’s Rights Right to share in profits when dividend is declared Right to elect directors and to establish corporate policies Right ( Preemptive right ) to maintain proportionate interest in corporation by being able to purchase additional shares Right to share in the distribution of assets the corporation liquidates Capital Stock refers to the shares of stock issued by the corporation and owned by its stockholders Two Types of Stock: Common stock and Preferred Stock Common Stock usually carries all the rights mentioned earlier Preferred stock is not granted all of Common Stock’s rights States of Stock: Authorized Capital Stock is the number of shares the corporation can issue Issued Capital Stock is the number of shares the corporation has issued as of a specific date Outstanding Capital Stock is the number of shares that a corporation has issued to stockholders and that are also still being held (does not include stock purchased back as Treasury Stock) Treasury Stock is the number of shares that have been issued to shareholders, but then bought back (T-stock= Issued Shares – Outstanding Shares) Subscribed capital stock is the number of shares the corporation will issue upon the completion of an installment purchase contract with an investor Legal capital Stockholder’s have limited liability. They aren’t responsible for the company’s other debts. To protect creditors, the idea of Legal Capital has been developed. Legal Capital is the amount of Stockholders’ equity that corporation cannot distribute to stockholders. Corporation can’t pay dividends or reacquire capital stock if it will impair legal capital Usually the par value/stated value of the capital stock is the legal capital 1
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Corporation establishes legal capital by issuing par value stock. Legal Capital is par value per share multiplied by the number of shares issued Additional Paid in Capital is also known as: Paid-in capital in excess of par value, Premium on Capital Stock or Contributed Capital in Excess of Par (it can also be called Capital Surplus ) Stockholders’ Equity Corporation reports the various components of its capital structure in the “stockholders’ Equity” section of the “ Balance Sheet Stockholders Equity Section Contributed Capital (or “Paid-in Capital”) Capital Stock Additional Paid in Capital
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