Accounting Chapter 15.1

Paid in (contributed) capital, Earned capital

Equity arising from contributions by the owners. Ex. Common stock, preferred stock, additional paid in capital

Equity arising from past earnings retained in the company; primarily retained earnings

an arbitrary amount assigned to the stock by the corporation's organizers when the stock is first authorized by the state.

par value

the minimum amout a stockholder must invest in the corporation or be liable to its creditors for the difference

• 1. No par stock with a stated value. The stated value establishes minimum legal capital.
• 2. True no par stock. a. the stock has no par value or stated value. b. the stock's issuance price establishes minimum legal capital.

• a. preferred stock generally carries no voting rights while common stock does.
• b. Preferred stockholders have asset preference over common stockholders in the event of liquidation.
• c. Preferred stockholders have preference with respect to dividends (they will get them before common stock if they get them).

It implies that dividends in arrears must be paid prior to the issuance of any common stock dividends.

Preferred stock may be allowed to participate (share) in dividends above its stated percentage in the current year (but not below).

This is preferred stock that can be retired at a specified price by the corporation.

This is preferred stock that has a mandatory redemption date and price (it must be retired). Thus, it has characteristics of both debt and equity.

It should be reported as debt, dividend payments are interest expense

This is preferred stock that is convertible into a given number of shares of common stock at the discretion of the PS holder.