Chapter 11 - Chapter 11: Stockholders Equity Stockholders...

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Chapter 11: Stockholders Equity
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Stockholders’ Equity Corporate form of organization Benefits of Corporations Access to large amounts of capital Limited liability Liquidity Risk sharing Sources of stockholders’ equity Contributed capital Retained earnings
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Stockholders’ Equity Accounts Common stock, at par Preferred stock Additional Paid-in Capital (APIC) Retained Earnings Other stockholders’ equity Treasury stock (A contra-equity account)
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Contributed Capital Authorized shares Issued shares Treasury stock Outstanding shares Voting rights, dividend rights Market Capitalization Shares outstanding x share price Earnings per share Net income / Average common shares outstanding
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Issuing common shares Par value Initial Public Offering (IPO) Cash 25,000,000 Common stock 100,000 Capital in excess of par 24,900,000 Issue of 1,000,000 shares, $0.10 par value, at $25 per share.
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Exercise 11-3: Stock Issuances Horace Company had the following transactions during 2008, its first year of business: a. Issued 5,000 shares of $5 par common stock for cash at $15 per share. b. Issued 7,000 shares of common stock on May 1 to acquire a factory building from Barkley Company. Barkley had acquired the building in 2004 at a price of $150,000. Horace estimated that the building was worth $175,000 on May 1, 2008. c. Issued 2,000 shares of stock on June 1 to acquire a patent. The accountant has been unable to estimate the value of the patent but has determined that Horace’s common stock was selling at $25 per share on June 1. Required 1. Record an entry for each of the transactions. 2. Determine the balance sheet amounts for common stock and additional paid-in capital.
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1. a. Cash 75,000 Common Stock 25,000 Additional Paid-in Capital 50,000 To record issuance of common stock. B ALANCE S HEET I NCOME S TATEMENT Assets = Liabilities + Stockholders’ Equity + Revenues – Expenses Cash 75,000* Common Stock 25,000** Additional Paid-in Capital 50,000*** *$15 × 5,000 = $75,000 **$5 × 5,000 = $25,000 ***$10 × 5,000 = $50,000
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b. Building 175,000 Common Stock 35,000 Additional Paid-in Capital 140,000 To record issuance of common stock. B ALANCE S HEET I NCOME S TATEMENT Assets = Liabilities + Stockholders’ Equity + Revenues – Expenses Building 175,000 Common Stock 35,000* Additional Paid-in Capital 140,000 *$5 × 7,000 = $35,000
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c. Patent 50,000 Common Stock 10,000 Additional Paid-in Capital 40,000 To record issuance of common stock. B ALANCE S HEET I NCOME S TATEMENT Assets = Liabilities + Stockholders’ Equity + Revenues – Expenses Patent 50,000* Common Stock 10,000** Additional Paid-in Capital 40,000 *$25 × 2,000 = $50,000 **$5 × 2,000 = $10,000
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2. Common Stock, $5 par value: 14,000 shares issued and outstanding $70,000 Additional Paid-in Capital ($50,000 + $140,000 + $40,000) 230,000 Total Contributed Capital $300,000
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Treasury Stock Transactions Repurchase of shares:
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This note was uploaded on 02/20/2012 for the course MGMT 200 taught by Professor Greigg during the Fall '08 term at Purdue University-West Lafayette.

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Chapter 11 - Chapter 11: Stockholders Equity Stockholders...

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