Page 493 - Accounting Principles (A Business Perspective)

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The number of shares issued and the number of shares outstanding may be different. Issued stock has been
issued at some time, while outstanding shares are currently held by stockholders. All outstanding stock is issued
stock, but the reverse is not necessarily true. The difference is due to shares returned to the corporation by

stockholders; it is called treasury stock. Chapter 13 discusses treasury stock.

An accounting perspective:

Business insight

SCI Systems, Inc., designs, manufactures, and distributes electronic products for a wide variety of
industries. The following illustration is adapted from the company's balance sheet. The
stockholders' equity section shows the actual number of shares of common stock authorized and
outstanding and shows the dollar amounts in thousands:

June 30
Common stock, USD0.10 par value; authorized 2001 2000
500,000,000 common shares, issued
147,132,428 shares in 2001 and 144,996,374
shares in 2000. USD 14,713 USD 14,500
Classes of capital stock
A corporation may issue two basic classes or types of capital stock—common and preferred.
If a corporation issues only one class of stock, this stock is common stock. All of the stockholders enjoy equal
rights. Common stock is usually the residual equity in the corporation. This term means that all other claims

against the corporation rank ahead of the claims of the common stockholder.
Preferred stock is a class of capital stock that carries certain features or rights not carried by common stock.
Within the basic class of preferred stock, a company may have several specific classes of preferred stock, each with
different dividend rates or other features.
Companies issue preferred stock to avoid: (1) using bonds with fixed interest charges that must be paid
regardless of the amount of net income; (2) issuing so many additional shares of common stock that earnings per
share are less in the current year than in prior years; and (3) diluting the common stockholders' control of the
corporation, since preferred stockholders usually have no voting rights.
Unlike common stock, which has no set maximum or minimum dividend, the dividend return on preferred stock

is usually stated at an amount per share or as a percentage of par value. Therefore, the firm fixes the dividend per
share. Exhibit 96 shows the various classes and combinations of capital stock outstanding for a sample of 600
companies.

Accounting Principles: A Business Perspective 494 A Global Text