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Authorized Shares

The maximum number of shares that may be issued for each class of capital stock.

Issued Shares

Shares that have been sold to stockholders.

Outstanding Shares

Shares that have been issued and remain in the hands of stockholders.

When a company issues only one type of capital stock it is called

Common Stock

Dividend Preference

Entitled to a dividend before common stockholders.

Premium amortization ____ interest expense relative to the coupon payment.

Premium amortization decreases interest expense relative to the coupon payment.

Discount amortization _____ interest expense relative to the coupon payment.

Discount amortization increases interest expense relative to the coupon payment.

Examples of Contingent Liabilities 

Product warranties, Lawsuits, Environmental cleanup costs. 

Contingent Liabilities depends on two things:

The likelihood of the future event, and the ability to measure the obligation.

If Bond Coupon Rate is 8% and the Effective interest rate is 8%

The bond will sell at face value.

If the Bond Coupon Rate is 8% and the Effective Interest rate is 10%

The bond will sell at a Discount.

If the Bond Coupon Rate is 8% and the Effective Interest Rate is 6%

The bond will sell at a Premium.

Journal Entry to record bond issued at a Discount:

Debit Cash, Debit Discount on Bonds Payable, Credit Bonds Payable.

Journal Entry to record bond issued at face value:

Debit Cash, Credit Bonds Payable

Journal Entry to record bond issued at Premium:

Debit Cash, Credit Premium on Bonds Payable, Credit Bonds Payable.

Bonds Outstanding 

A bond currently in circulation that the issuer still owes money on.

Callable Bonds

Allow the issuer to redeem the bonds prior to the maturity date typically including a premium.

Convertible Bonds

Grant the bondholder the right to convert the bonds into the company’s common stock at a specific conversion rate.

Debenture Bonds

Rely on the general credit worthiness of the borrower rather than specific collateral.

Secured Bonds

Pledge specific property as collateral in case of default.

Treasury Stock Purchase Journal Entry

Debit Treasury Stock, Credit Cash, Both Cost of Purchase

Treasury Stock Reissue Journal Entry

Debit Cash, Credit Treasury Stock, Credit APIC-TS, Sales Price, Cost of Purchase, Difference