18 - 1 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Corporations:
Organization and
Capital Stock
Chapter 18
18 - 2 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Defining a corporation;
establishing a corporation;
listing the advantages and
disadvantages of a corporation.
Learning Objective 1
18 - 3 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 18-1
(Forming a Corporation)
Incorporators write up and submit
articles of incorporation to the state.
The Secretary of State issues a charter.
Stockholders are the owners.
A board of directors is elected by
stockholders at the first meeting.
18 - 4 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 18-1
(Forming a Corporation)
What are some advantages of the
corporate form of organization?
Limited liability/separate legal entity
Unlimited life
Ease of transferring ownership
No mutual agency
Ease of raising capital
18 - 5 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
What are some disadvantages?
Corporate taxation (double taxation)
Difficulties in forming a corporation
Learning Unit 18-1
(Forming a Corporation)
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Journalizing entries for issuing
par-value stock, no-par stock,
and no-par with stated value stock.
Learning Objective 2
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Retained Earnings
Paid-in Capital
Learning Unit 18-2
(Stockholders Equity)
18 - 8 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 18-2
(Stockholders Equity)
Capital stock
Authorized capital stock
Issued capital stock
Outstanding capital stock
18 - 9 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 18-2
(Stockholders Equity)
Capital stock is the amount
paid to the business.
Par value is the legal capital
assigned to each share.
Usually it is the amount paid
to the corporation for the
initial issuances of stock.
Retained earnings is net income
less net loss less dividends.
18 - 10 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 18-2
(Stockholders Equity)
What are some characteristics
of common stock?
Voting rights
Profit sharing
Selling the stock
Preemptive right (right to
maintain ownership ratio)
18 - 11 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 18-2
(Stockholders Equity)
What are some characteristics
of preferred stock?
First claim to dividend distribution
Usually have no voting rights
18 - 12 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 18-2
(Stockholders Equity)
Dividends are paid to stockholders as
their share of the corporations profit.
Common dividends
Preferred dividends
18 - 13 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 18-2
(Stockholders Equity)
Cumulative preferred stockholders have
a right to receive a dividend each year.
Amounts not declared and
paid accumulate each year.
These are paid before any current
year dividends (dividends in arrears).
18 - 14 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 18-3
(Recording Transactions)
Roger Company sells 200 shares of a $10
par value common stock at $10 per share.
Accounts Affected Category Rules
Cash Asset Dr. 2,000
Common Stock SE Cr. 2,000
18 - 15 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 18-3
(Recording Transactions)
Assume R.C. sells 300 shares of $50 par value
preferred stock at $50 on March 18, 20xx.
What is the journal entry?
March 18, 20xx
Cash 15,000
Preferred Stock 15,000
18 - 16 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 18-3
(Recording Transactions)
Roger Co. sells 50 shares of $10 par value
common stock at $15 on June 8, 20xx.
June 8, 20xx
Cash 750
Common Stock 500
Paid-in Capital in Excess
of Par Value Common 250
18 - 17 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 18-3
(Recording Transactions)
Moss Co. sells 300 shares of a no-par
common stock for $20 per share.
Accounts Affected Category Rules
Cash Asset Dr. 6,000
Common Stock SE Cr. 6,000
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Calculating dividends on
preferred and common stock.
Learning Objective 3
18 - 19 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 18-3
(Recording Transactions)
A $150,000 dividend is declared.
Preferred stock is 6 % and fully participating.
Preferred stock: 1,000 shares, $200 par.
Common stock: 6,000 shares, $100 par.
18 - 20 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 18-3
(Recording Transactions)
Preferred dividend:
1,000 shares $200 .06 = $12,000
Common dividend:
6,000 shares $100 .06 = $36,000
How is the remaining
$102,000 allocated?
18 - 21 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Preferred stock:
$200,000 $800,000 $102,000 = $25,500
Common stock:
$600,000 $800,000 $102,000 = $76,500
Learning Unit 18-3
(Recording Transactions)
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Recording capital stock
transactions under a stock
subscription plan.
Learning Objective 4
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Learning Unit 18-4
(Recording Transactions)
Common Stock Subscribed
Subscriptions Receivable Common Stock
18 - 24 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 18-4
(Recording Transactions)
When stock is fully paid, it is issued.
The par value is then transferred to common stock.
Assume that Krump Corporation received
subscriptions for 1,000 shares of $100
par-value common stock at $160 per share.
18 - 25 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 18-4
(Recording Transactions)
Subscriptions Receivable
Common Stock 160,000
Common Stock Subscribed 100,000
Paid-in Capital in Excess of Par 60,000
Received stock subscriptions
18 - 26 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 18-4
(Recording Transactions)
Source-of-capital approach
Legal capital approach
18 - 27 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
End of Chapter 18