Page 504 - Accounting Principles (A Business Perspective)

12. Stockholders' equity: Classes of capital stock

• Par value—an arbitrary amount assigned to each share of a given class of stock and printed on the stock
certificate.

• Stated value—an arbitrary amount assigned by the board of directors to each share of a given class of no-
par stock.
• Market value—the price at which shares of capital stock are bought and sold in the market.
• Book value—the amount per share that each stockholder would receive if the corporation were liquidated
without incurring any further expenses and if assets were sold and liabilities liquidated at their recorded
amounts.
• Liquidation value—the amount a stockholder would receive if a corporation discontinues operations, pays

its liabilities, and distributes the remaining cash among the stockholders.
• Redemption value—the price per share at which a corporation may call in (redeem) its capital stock for
retirement.
• Capital stock authorized—the number of shares of stock that a corporation is entitled to issue as designated
in its charter.
• Capital stock issued—the number of shares of stock that have been sold and issued to stockholders.
• Capital stock outstanding—the number of authorized shares of stock that have been issued and that are still
currently held by stockholders.
• Two basic classes of capital stock:

(a) Common stock—represents the residual equity.
(b)Preferred stock—may be preferred as to dividends and/or assets. Also may be cumulative and/or
callable.
• If the company has paid-in capital in excess of par value, the proper form would be:

Stockholders' equity:
Paid-in capital:
Preferred stock—$100 par value, 6%
cumulative; 1,000 shares
authorized,issued, and outstanding $ 100,000
Common stock—without par value, stated
value, $5; 100,000 shares
authorized,80,000 shares; issued and
outstanding 400,000 $ 500,000
Paid-in capital in excess of par (or stated)value:
From preferred stock issuances $ 5,000
From common stock issuances 20,000 25,000
Total paid-in capital $ 525,000
Retained earnings 200,000
Total stockholders' equity $ 725,000
The following examples illustrate the issuance for cash of: (1) stock with a par value, (2) no-par value stock with
a stated value, and (3) no-par value stock without a stated value.
• Issuance of par value stock for cash—10,000 shares of USD 20 par value common stock issued for USD 22

per share.
Cash (+A) 220,000
Common Stock (+SE) 200,000
Paid-In Capital in Excess of Par 20,000

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