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Chapter_15_Notes

Chapter_15_Notes - Chapter 15 Notes Stockholders Equity...

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Chapter 15 Notes – Stockholders’ Equity Stockholders’ equity is the difference b/t the assets and the liabilities of the company (A=L+SE, so A- L=SE) Stock represents equity in a company.  Stocks have the following rights, unless otherwise restricted: Proportionate share in profits/losses Right to vote Proportionate share in assets upon liquidation Preemptive rights – protects stockholders from involuntary dilution of ownership interest Terms: Authorized stock – maximum # shares corp. is allowed to sell Issued stock – stock that has been sold Outstanding stock – stock that is in the hands of the shareholders.  Not all issued stock is  outstanding. Treasury stock – stock that has been repurchased by the co.  TS is issued but not outstanding. Accounting for Par Value Stock Par value is the stated value (face value) of the stock and has no relation to FMV. When issued at par (issued $5 par C/S at $5): When issued above par value (issued $5 par C/S at $7): Accounting for No-Par Value Stock Issued for whatever price they can bring but no APIC is recorded.  Simply debit cash for amount  received and credit C/S - No-par Value for the same amount. Chapter 15 Notes 1
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Some states allow no-par value stock to have a stated value.  Suppose we sell no-par value stock with  a stated value of $5 for $8: Accounting for Stock Issued with Other Securities A corporation can issue two or more classes of securities for a single payment or lump sum, in the  acquisition of another company.  Two methods of allocation are: 1. Proportional Method: If the FMV is available for each class of security, allocate the lump  sum received on a proportional basis. a. Assume we issue 10,000 shares of $5 par C/S with a FMV of $12, and 10,000 share  of $7 par P/S with a FMV of $13, for a lump sum of $300,000.  Allocate this  amount to C/S & P/S. 2. Incremental Method: If the FMV of all classes is not known, allocate based on the FMV of  any class that is known and allocate the remainder to the other class.
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