Components of stockholders equity
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Components of Stockholders’ Equity. Paid-in capital “ Legal” capital (par or stated value) Additional paid-in capital Accumulated other comprehensive income Retained earnings ( undistributed earnings). Issuance of Stock. Par value stock Record common stock at par value

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Components of Stockholders’ Equity

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Components of Stockholders’ Equity

  • Paid-in capital

    • “Legal” capital(par or stated value)

    • Additional paid-in capital

  • Accumulated other comprehensive income

  • Retained earnings (undistributed earnings)

Issuance of Stock

  • Par value stock

    • Record common stock at par value

  • No-par with stated value

    • Record common stock at stated value

  • “Pure” no-par stock

    • Entire sale proceeds credited to stock account

Subscribed Stock

  • Individuals sign valid contracts for stock purchase.

  • Entire Paid-in Capital in Excess of Par is recorded at issuance.

  • Common Stock Subscribed credited.

  • Common Stock is recorded ONLY on full receipt of cash.

Subscriptions received, $1,000

(par = $250)

Cash received

Issuance of stock

Subs. Rec. 1000

CS Subscribed 250

APIC 750

Cash 1000

Subs. Rec. 1000

CS Subscribed 250Com. Stock 250

Subscribed Stock - Entries



Financial Statement Presentationof Subscriptions Receivable

  • Deduction from stockholders’ equity [preferred method and required by SEC unless receivable collected prior to issuance of financial statements]

  • Asset (current if collectible within a year or operating cycle …)

Financial Statement Presentation of Common Stock Subscribed

  • Presented in a manner similar to but separate from (below) common stock

  • Must be identified as subscribed stock

Reasons for Treasury Stock

  • Increase earnings per share and return on equity

  • Provide tax efficient distributions of excess cash to shareholders

  • Provide stock for employee stock compensation contracts

  • Thwart takeover attempts

  • Create or improve the market for the stock

Recording Treasury Stock


    • Treasury stock recorded at cost

    • Shown as reduction of equity in stockholders’ equity section


    • Treasury stock recorded at par value

    • Shown as reduction of common stock in stockholders’ equity section

CASE 1COST METHOD PAR VALUE METHODFeb. 15TS (10,000 X 15)150,000TS (10,000 X 10)100,000Cash150,000APIC (1/3 of 30,000) 10,000Retained earnings 40,000Cash150,000Apr. 28Cash34,000Cash34,000TS (2,000 X 15)30,000 TS (2,000 X 15) 20,000APIC-TS4,000 APIC14,000Aug. 17Cash27,000Cash27,000APIC-TS4,000Retained earnings3,000Retained earnings14,000TS (3,000 X 10)30,000TS (3,000 X 15)45,000

CASE 2Cost MethodPar Value MethodFeb. 15TS (10,000 X 10.50)105,000TS (10,000 X 10)100,000Cash105,000APIC (1/3 of 30,000)10,000Cash105,000APIC-TS 5,000Apr. 28Cash34,000Cash34,000TS (2,000 X 10.50)21,000TS (2,000 X 10)20,000APIC-TS13,000APIC14,000Aug. 17Cash27,000Cash27,000APIC-TS4,500APIC-TS3,000TS (3,000 X 10.50)31,500TS (3,000 X 10)30,000

Preferred Stock Features

  • Preference as to dividends

  • Preference as to assets in the event of liquidation

  • Convertibility into common stock at the option of the stockholders

  • Callable at the option of the corporation

  • Nonvoting

Stock Issued in Noncash Transactionswith Other than Employees

  • Record at FV of stock issued or FV of services or property received, whichever is more clearly determinable

Net loss

Prior period adjustments

Cash dividends

Property dividends

Stock dividends

Treasury stockdeficiencies

Net income

Prior period adjustments


Retained Earnings

Debit Adjustments

Credit Adjustments

Types Of Dividends

  • Cash dividends

  • Scrip dividends

  • Property dividends

  • Stock dividends

  • Liquidating dividends (return of capital)

Cash Dividends - Three Important Dates

Date of declaration – date dividends are declared

Date of record – date list of stockholders to whom dividends are to be paid is finalized

Date of payment - date dividends are paid to stockholders of record

Date of Declaration

Date of Record

Date of Payment

Retained Earnings Dividends Payable

No Entry

Dividends Payable


Cash Dividends: Journal Entries


  • Nonreciprocal transfers of nonmonetary assets to owners

  • Record at fair value of assets transferred (recognize gain/loss on transfer)

Property Dividend:Entries

  • Dividend declared on Dec. 21, 2014 – to be distributed in the form of marketable securities owned by Alpha Company.

  • Dividend is declared on Dec. 21, 2014 and payable on Jan. 21, 2015 to stockholders of record on Jan 14, 2015.

  • Fair value of securities is $134,000 on Dec 21, 2014 and $ 135,900 on Jan 21, 2015.

  • Cost of securities is $110,000.

    Record the entries on the dates of declaration, record, and payment.

Investments 24,000

Gain – Mkt. Sec. 24,000

Declaration Date


Ret. Earnings 134,000

Prop. Div. Pay. 134,000

Declaration Date


Prop. Div. Pay 134,000

Investments 134,000


Payment Date

Property Dividend Entries

Stock Dividends

  • Issuance of more-shares dividend (no cash flow is involved)

  • Small stock dividends involve issues of less than 20% - 25% of outstanding stock

  • The accounting for small stock dividends is based on the fair market value of stock issued.

  • The accounting for large stock dividends (more than 20%-25% of outstanding stock) is based on the par value of stock issued.

Small Dividend

Large dividend

Less than

20 - 25% shares

More than

20 - 25% shares

Stock Dividends

Types of Dividends


at declaration

Use par


Stock Dividends: Journal Entries

  • Outstanding stock: 1,000 shares; $10 par

  • Stock dividend: 10%

  • FMV on date of declaration: $12

Ret. Earnings 1,200

CS Distributable 1,000

APIC 200


CS Distributable 1,000

Common Stock 1,000


Small Stock Dividend

Stock dividend = 10% of 1,000 shares = 100 shares

Large Stock Dividends

  • Outstanding stock: 3,000 shares; $10 par

  • Stock dividend: 30%

  • FMV on date of declaration: $12

Ret. Earnings 9,000

CS Distributable 9,000


CS Distributable 9,000

Common Stock 9,000


Large Stock Dividends

Stock dividend = 30% of 3,000 shares = 900 shares


  • Par value of each share decreases

  • Number of shares increases

  • Total par value is unchanged

  • Total stockholders’ equity is unchanged

  • No formal journal entry [memo entry is made]

Par value of a share does not change

Total number of shares increases

Total stockholders’ equity does not change

The composition of equity changes (less of retained earnings; more of stock)

Stock dividends require journal entries

Par value of a share decreases

Total number of shares increases

Total stockholders’ equity does not change

The composition of equity does not change (same amounts of stock and RE)

Stock splits do not require journal entries

Stock Dividends and Stock Splits

Stock Dividends

Stock Splits

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