CHAPTER 15 Stockholders' Equity Contributed capital

B the par value method records all treasury stock

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b. The par value method records all treasury stock transactions at par value and reports the amount as a deduction from issued shares of the same class of stock. The method is discussed in Appendix 15A. E. Characteristics of Preferred Stock: Usually issued with a par value. Sometimes, preferred stock has more debt characteristics than equity characteristics. The most common features are:
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1. Preference as to dividends. Preferred stockholders are paid before common stockholders. a. The dividend is expressed as a percentage of par value. b. Cumulative preferred stock—dividends in arrears must be paid before the current year's dividend is paid to either preferred or common stockholders. c. Participating—preferred stockholders share ratably with common stockholders in any dividends beyond the prescribed rate. 2. Preference as to assets in the event of liquidation. 3. Convertible into common stock. 4. Callable at the option of the corporation–at set prices 5. Nonvoting 6. Debt characteristics—some preferred stock has all the characteristics of debt (fixed return, no vote, and redeemable). a. The SEC requires that redeemable preferred stock be excluded from stockholders' equity. F. Paid-in Capital Presentation. 1. Paid-in Capital arises from the sale of capital stock. 2. The basic transactions affecting additional paid-in capital are: Additional Paid-in Capital a. Discounts on stock issued b. Sale of treasury stock below cost. c. Absorption of a deficit in quasi reorganization. d. Declaration of a liquidating dividend. a. Premiums on stock issued. b. Sale of treasury stock above cost. c. Additional capital arising in a quasi reorganization d. Additional assessments. e. Conversion of convertible securities. f. Declaration of a small stock dividend.
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G. Appendix 15 A. Par Value Method. 1. Acquisitions of Treasury Stock are recorded at the par or stated value of the stock reacquired and reported as a deduction from issued shares of the same class of stock. Teaching Tip Illustration 15-5 provides a numerical example of the journal entries under the par value method.
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