Accounting 101AF Ch 11

Corporation

an entity that is separate from its owners and has many of the same rights as a person

privately held or closely held

corporation offers its stock for public sale and can have thousands of stockholders

Public sale

selling and trading stock on an organized stock market such as the NYSE or NASDAQ

Corporate Advantages

• separate legal entity

• Limited liability

• transferable ownership rights

• continuous life

• no mutual agency for stockholders

• easier capital accumulation

Corporate disadvantages

• government regulation

• Corporate taxation

Rights of Stockholders

• vote at stockholders meeting

• sell or dispose of their stock

• purchase their proportional share of any common stock later issued

• receive their proportional share of dividends

• share in any assets remaining after creditors and preferred stockholders are paid if the corporation is liquidated

Issuing Par Value Stock

Par value stock can be issued at par, at a premium (above par) or at a discount (below par). Cash or other assets are received in exchange for stock

Issuing Par Value Stock at Par

The entry to record Dillon’s issuance of 30,000 shares of $10 par value stock for $300,000 Cash on June 5 follows….

Cash 300,000 (debit)

Common stock, $10 Par Value 300,000 (credit)

issued 30,000 shared of $10 par value stock at par

Issuing Par Value Stock at a premium

If Dillon issues its $10 par value common stock at $12 per share, its stock is sold at a $2 per share premium. The entry to issue 30,000 shares of $10 par value stock for $12 per share follows

Cash 360,000 debit

Common stock, $10 Par value 300,000 (credit)

Paid-In capital in excess of par value, common stock 60,000 (credit)

sold and issued 30,000 shares of $10 par value common stock at $12 per share

premium on stock

occurs when a corporation sells its stock for more than par (or stated) value this is the most common occurrence

Issuing No-par value stock

the entry to issue 1,000 shares of no par common stock for $40 cash per share follows

Cash 40,000 (debit)

Common stock, no-par value 40,000 (credit)

Issued 1,000 shares of no-par stock at $40 per share

Issuing stated value stock

credited to the stock account

The entry to issue 1,000 shares of no-par common stock having a stated value of $40 per share in return for $50 cash per share follows

Cash 50,000 (debit)

Common stock, $40 stated Value* 40,000 (credit)

Paid-in Capital in excess of stated Value, common stock 10,000 (credit)

issued 1,000 shares of $40 per share stated value stocked at $50 per share

Issuing stock for noncash assets

a corporation can receive assets other than cash in exchange for its stock

If no-par stock is issued, the stock is recorded at the assets market value, the entry record receipt of land valued at 105,000 in return for 4,000 shares of $20 par value common is

Land 105,000 (debit)

Common stock $20 Par Value 80,000 (credit)

paid-in capital in excess of par value, common stock 25,000 (credit)

exchanged 4,000 shares of $20 par value stock for land

the entry to issue 600 shares of $15 par value common stock for 12,000 of organizing work is

organization expenses 12,000 (debit)

Common stock $15 par value* 9,000 (credit)

Pain-in capital in excess of par value common stock 3,000 (credit)

Gave promoters 600 shares of $ 15 par value common stock in exchange for their services