11-STOCKHOLDERS----EQUITY-Paid-In-Capital-20022025-040520pm.ppt

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1. © The McGraw-Hill Companies, Inc., 2008
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11-1
STOCKHOLDERS’ EQUITY:
Paid-In Capital
Chapter
11
Business Studies Department, BUKC

2. © The McGraw-Hill Companies, Inc., 2008
McGraw-Hill/Irwin
11-2
Accounting by
the issuer.
Accounting by
the investor.
Common stock is
carried at original issue
price.
Investments in
marketable securities
are carried at market
value.
Market Value

3. © The McGraw-Hill Companies, Inc., 2008
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11-3
Learning Objective
LO7
To explain the
significance of par
value, book value, and
market value of capital
stock.

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11-4
Book Value per Share
of Common Stock
Total Stockholders’ Equity
Number of Common Shares Outstanding
Preferred stock and preferred
dividends in arrears are deducted
from total stockholders’ equity.
Book Value Market Value=

5. © The McGraw-Hill Companies, Inc., 2008
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11-5
Learning Objective
LO8
To explain the purpose
and effects of a stock
split.

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11-6
Ice Cream Parlor
Banana Splits
On Sale Now
Stock Splits
Companies use
stock splits to
reduce market
price.
Outstanding shares
increase, but par
value is decreased
proportionately.

7. © The McGraw-Hill Companies, Inc., 2008
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11-7
Assume a corporation has 5,000 shares of
$1 par value common stock outstanding
before a 2–for–1 stock split.
Increase
Decrease
No
Change
Stock Split

8. © The McGraw-Hill Companies, Inc., 2008
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11-8
Learning Objective
LO9
To account for
treasury stock
transactions.

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11-9
No voting No voting
or or
dividend dividend
rightsrights
Contra
equity
account
When stock is reacquired, the corporation
records the treasury stock at cost.
Treasury
shares are
issued
shares that
have been
reacquired
by the
corporation.
Treasury Stock

10. © The McGraw-Hill Companies, Inc., 2008
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Stockholder’s Equity:

9% cumulative preferred stock, $100 par value,
authorized 1000,000 shares, issued 50,000 shares……………………………. $ 5,000,000
Common Stock, $5 par value; authorized 3 million
shares; issued 2 million shares……………………………………………………… $10,000,000

Additional Paid-in-Capital:
Common Stock…………… ……………………………………………………… $ 200,000
Preferred Stock…………………………………………………………………….. $20,000,000
Total Paid-in-Capital………………………………………………………………….. $35,200,000

Retained Earnings……………..………………………………………………………… 13,500,000
Total Stockholder’s Equity………………………………………………………… .$48,700,000
Business Studies Department, BUKC
10

11. © The McGraw-Hill Companies, Inc., 2008
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11-11
Paid-in Capital Of A CorporationPaid-in Capital Of A Corporation
•Treasury Stock
•Purchase
Assume that a company purchased 20,000 shares of its common stock from the
market at $ 50 per share.
Treasury Stock $ 1,000,000
Cash $ 1,000,000
Business Studies Department, BUKC
11

12. © The McGraw-Hill Companies, Inc., 2008
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Stockholder’s Equity:

9% cumulative preferred stock, $100 par value,
authorized 1000,000 shares, issued 50,000 shares……………………..………………. $ 5,000,000
Common Stock, $5 par value; authorized 3 million shares;
issued 2 million shares (of which 20000 are held in treasury)…………………………… 10,000,000

Additional Paid-in-Capital:
Common Stock…………………………………………………………………………………… 200,000
Preferred Stock………………………………………………………………………………..… 20,000,000
Total Paid-in-Capital……………………………………………………………………….. $35,200,000

Retained Earnings…………………………………………………………………………………… 13,500,000
Subtotal……………………………………………………………………………………………$ 48,700,000
Less: Treasury Stock (20000 shares of common at $50 each)………………………………….. (1,000,000 )
Total Stockholder’s Equity…………….………………………………………..……………… .$47,700,000
Business Studies Department, BUKC
12

13. © The McGraw-Hill Companies, Inc., 2008
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11-13
Paid-in Capital Of A CorporationPaid-in Capital Of A Corporation
•Treasury Stock
•Reissuance
Assume that a company reissued 10,000 of the treasury
stock at $ 60 per share.
Cash $ 600,000
Treasury Stock $ 500,000
Additional Paid-in Capital: TS $100,000
Business Studies Department, BUKC
13

14. © The McGraw-Hill Companies, Inc., 2008
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11-14
Stockholder’s Equity:

9% cumulative preferred stock, $100 par value,
authorized 1000,000 shares, issued 50,000 shares……………………….……………. $ 5,000,000
Common Stock, $5 par value; authorized 3 million shares;
issued 2 million shares (of which 10000 are held in treasury)………………………..… 10,000,000

Additional Paid-in-Capital:
Common Stock……………………………………………………………………………… 200,000
Preferred Stock……………………………………………………………………………….. 20,000,000
Treasury Stock……………………………………………………………………………... 100,000
Total Paid-in-Capital……………………………………………………………………….. $35,300,000

Retained Earnings…………………………………………………………………………………… 13,500,000
Subtotal………………………………………………………………………………………….$ 48,700,000
Less: Treasury Stock (10000 shares of common at $50 each)…………………….....................(500,000 )

Total Stockholder’s Equity…………….………………………………………………………. .$48,200,000
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15. © The McGraw-Hill Companies, Inc., 2008
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On May 1, 2007, East, Inc. reacquires 3,000 shares
of its common stock at $55 per share.
Prepare the journal entry for May 1.
Treasury Stock - Example

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On December 3, 2007, East Corp. reissued 1,000
shares of the stock at $75 per share.
Prepare the journal entry for December 3.
Treasury Stock - Example
1,000 shares × $55 cost = $55,000
1,000 shares × $75 = $75,000

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Stockholders’ Equity - Presentation

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Any Questions?
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End of Chapter 11

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Thanks
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