Corporations: Paid-in Capital and the Balance Sheet Chapter 13 Objective 1 Identify the Characteristics of a Corporation. Characteristics – separate legal entity – continuous life and transferability of ownership – no mutual agency – limited liability of stockholders – separation of ownership and management – corporate taxation – government regulation Organizing a Corporation • The process of creating a corporation begins when the organizers (incorporators) obtain a charter from the state. • The charter authorizes the corporation to issue stock and conduct business in accordance with state law and the corporation’s bylaws. Organizing a Corporation • Stockholders elect the board of directors. • The board sets policy, appoints the officers, and elects a chairperson. • The board also designates the president, who is the chief operating officer. Authority Structure in a Corporation Stockholders Board of Directors Chairperson of the Board President Various Vice-Presidents and Secretary Controller Treasurer Capital Stock • Corporate ownership is evidenced by a stock certificate which may be for any number of shares. • The total number of shares authorized is limited by charter. Stockholders’ Equity Paid-in capital Paid-in capital Retained earnings Retained earnings Owners’ equity in the corporation has two components: Stockholders’ Equity Example On June 1, the Bloom’s Corporation issued stock valued at $10,000. June 1 Cash 10,000 Common Stock 10,000 Issued stock Stockholders’ Equity Example Bloom’s Corporation net income for the year was $800,000. December 31 Income Summary 800,000 Retained Earnings 800,000 To close net income to Retained Earnings [...]... exchange for a building Issuing Preferred Stock • Accounting for preferred stock follows the pattern illustrated for common stock • Stockholders’ equity on the balance sheet lists preferred stock, common stock, and retained earnings – in that order Objective 3 Prepare the Stockholders’ Equity Section of a Corporation Balance Sheet Review of Accounting for Paid-In Capital Stockholders’ Equity Paid-in Capital:... 72,000 $171,000 85,000 $256,000 Review of Accounting for Paid-In Capital • Paid-in capital and retained earnings represent the stockholders’ equity (ownership) in the assets of the corporation • Paid-in capital comes from the corporation’s stockholders who invested in the company • Retained earnings come from the corporation’s customers Review of Accounting for Paid-In Capital • Which is more permanent,... corporations use their retained earnings for declaring dividends to the stockholders Dividend Dates • A corporation must declare a dividend before paying it • The board of directors alone has the authority to declare a dividend Dividend Dates Three relevant dates for dividends are: Declaration date Date of record Payment date Objective 4 Account for Cash Dividends Cash Dividends Example • On April 1, the board... to a share of stock • Most companies set the par value of their common stock quite low to avoid legal difficulties from issuing their stock below par Classes of Stock • No-par stock does not have a par value • Some have a stated value • Stated value is an arbitrary value assigned to a share of common stock • This is similar to par value Objective 2 Record the Issuance of Stock Issuing Stock Example... Issuing Stock Example The shares were issued at par of $1 January 13 Cash (10,000 shares @ $1) 10,000 Common Stock Issue common stock at par 10,000 Issuing Stock Example The shares were issued at a premium of $9 per share January 13 Cash (10,000 shares @ $10) 100,000 Common Stock 10,000 Paid-in Capital in Excess of Par-common 90,000 Issue common stock at a premium Issuing Stock Example The $1 stated value... 90,000 Issue common stock at a premium Issuing Stock Example Assume the shares were no-par common stock January 13 Cash (10,000 shares @ $10) Common Stock Issue no-par common stock 100,000 100,000 Issuing Stock Example • On September 11, Martin Corporation issued 15,000 shares of its $1 par common stock for a building worth $100,000 • What is the journal entry? Issuing Stock Example September 11 Building...Stockholders’ Rights • The ownership of stock entitles stockholders to four basic rights, unless specific rights are withheld by agreement 1 Vote 2 Dividends 3 Liquidation 4 Preemption Classes of Stock • Common stock is the most basic form of capital stock • Preferred stock gives its owners certain advantages over common... Payment date Objective 4 Account for Cash Dividends Cash Dividends Example • On April 1, the board declares a dividend of $1 per share payable June 15 to stockholders of record on May 15 • There are 60,000 shares outstanding Cash Dividends Example April 1 Retained Earnings 60,000 Dividends Payable Declared a cash dividend June 15 Dividends Payable Cash Paid a cash dividend 60,000 60,000 60,000 Cash Dividends... 1,000 shares, $100 par Common stock, 25,000 shares, $100 par Cash Dividends Example Preferred dividend 6% × $100 ×1,000 = $6,000 Common dividend $50,000 – $6,000 = $44,000 Cash Dividends Example Suppose there were 10,000, 6%, par value preferred shares Preferred dividend 6% × $100 ×10,000 = $60,000 Common shareholders receive nothing  . Corporations: Paid-in Capital and the Balance Sheet Chapter 13 Objective 1 Identify the Characteristics of a Corporation. Characteristics – separate legal entity – continuous life and. Corporation • Stockholders elect the board of directors. • The board sets policy, appoints the officers, and elects a chairperson. • The board also designates the president, who is the chief operating officer. . (incorporators) obtain a charter from the state. • The charter authorizes the corporation to issue stock and conduct business in accordance with state law and the corporation’s bylaws. Organizing