Number of shares multiplied by the stated value and

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number of shares multiplied by the stated value, and the remainder is assigned to the additio paid-in capital account. To illustrate, assume that Aon issues 100,000 shares of its $1 par value common stock a market price of $43 cash per share. This stock issuance has the following financial statem effects: Balance Sheet Transaction Cash Asset Liabil- + Contrib. '*' ities Capital Cash 4.300,000 cs 100,000 APIC 4,200,000 Cash 4,300,000 I CS 1100,000 APIC I 4,200,000 + Noncash Assets Issue +4,300,000 100,000 common shares with $1 par value for $43 cash per share +100,000 Common Stock +4,200,000 Additional Paid-In Capital = = IFRS Alert Stock terminology commonly differs between IFRS and GAAP. Under IFRS, common stock is called share capital and additional paid-in capital (APIC) is called share premium. Accounting for these items is identical under both systems. Specifically, the stock issuance affects the financial statements as follows: 1. Cash increases by $4,300,000 000,000 shares X $43 per share) 2. Common stock increases by the par value of shares sold (100,000 shares X $1 par val $100,000) 3. Additional paid-in capital increases by the $4,200,000 difference between the issue pr and par value ($4,300,000 - $100,000) Once shares are issued, they are traded in the open market among investors. The proceeds of sales and their associated gains and losses, as well as fluctuations in the company's stock subsequent to issuance, do not affect the issuing company and are not recorded in its acco records. Refer again to the following report of common stock on Aon's balance sheet: Common stock-$1 par value Authorized: 750 shares (issued: 2010-385.9; 2009-362.7) . Additional paid-in capital , , . $ 386 4,000 Aon common stock, in the amount of $4,386 million, equals the number of shares issued plied by the common stock's par value: 385.9 million X $1 = $385.9 million (rounded to million). Total proceeds from its stock issuances are $4,386, the sum of the par value and tional paid-in capital. This implies that common shares were sold, on average, for $11. - share ($4,386 million / 385.9 million shares).
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Module 8 I Equity Recognition and Owner Financing 8-8 :1lESEARCH INSIGHT Stock Issuance and Stock Returns :::l3searchshows that, historically, companies issuing equity securities experience unusually low stock s for several years following those offerings. Evidence suggests that this poor performance is due to overly optimistic estimates of long-term growth for these companies by equity analysts. ~-.at optimism causes offering prices to be too high. This over-optimism is most pronounced when analyst is employed by the brokerage firm that underwrites the stock issue. There is also evi- - ce that companies manage earnings upward prior to an equity offering. This means the observed zeorease in returns following an issuance likely reflects the market's negative reaction, on average, lower earnings, especially if the company fails to meet analysts' forecasts. k Repurchase has repurchased 53.6 million shares of its cornmon stock for a cumulative cost of $2,079 n. One reason a company repurchases shares is because it believes that the market under- them. The logic is that the repurchase sends a favorable signal to the market about the
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