Equity Financing

Equity Financing - EQUITY FINANCING Lesson Eleven COMMON...

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EQUITY FINANCING Lesson Eleven
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COMMON STOCK z Is the ownership of the business. z Has voting rights. z May or may not receive a dividend.
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PREFERRED STOCK z Additional ownership in the business. z Doesn’t have voting rights. z Has a set dividend rate. z Has a preference as to dividends and liquidation.
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WHAT HAPPENED TO CAPITAL STOCK? We began the course by talking about capital stock and now we’re switching to common and preferred. Capital stock is a generic term that we used to explain the concept. Specifically, stock will either be common or preferred.
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TO ISSUE STOCK z Par – amount credited to the Common Stock or Preferred Stock account
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TO ISSUE STOCK We issue 10,000 shares of $1 par Common Stock at $4 per share Cash (10000 x 4) 40000 Common Stock (10000 x 1) 10000 Paid in Capital in Excess of Par, CS 30000
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TO ISSUE STOCK We issue 100 shares of 5% $100 par Preferred Stock at $105 per share Cash (100 x 105) 10500 Preferred Stock (100 sh. x 100) 10000 Paid in Capital in Excess of Par, PS 500
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STOCKHOLDERS’ EQUITY ACCOUNTS z These accounts are all Stockholders’ Equity accounts and have credit balances: Common Stock Paid in Capital in Excess of Par, Common Preferred Stock Paid in Capital in Excess of Par, Preferred
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TO EXCHANGE STOCK FOR A NON- CASH ASSET z You want to exchange land for your stock. z If your stock is currently traded, use the market value of the stock. z If not, hire appraisers and let the board come to a consensus on the value
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TO EXCHANGE STOCK FOR A NON- CASH ASSET z A farmer has an acreage that your firm would like buy as a future plant site but can’t afford. z You offer the farmer 10,000 shares of your common stock that has a par value of $1 and a market value of $20. Your stock is actively traded.
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TO EXCHANGE STOCK FOR A NON- CASH ASSET Land (10000 x 20) 200000 Common Stock (10000 x 1) 10000 Paid in Capital in Excess of Par, CS 190000
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z Companies sometimes choose to buy back their own stock. z When a company buys back its own stock and holds it within the company, it is called Treasury Stock. z
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Equity Financing - EQUITY FINANCING Lesson Eleven COMMON...

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