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Chapter 15: Question 16Q (page 810)

List possible sources of additional paid-in capital.

Short Answer

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Additional paid-in capital is generated by issuingcommon stock or preferred stock in excess of par value or premiums on stock issued.

Step by step solution

01

Meaning of Paid-in Capital

The amount of capital "paid in" by investors during common or preferred stock issuances, comprising the par value of the shares as well as sumsin excess of par value, is referred to as paid-in capital.

02

Sources of additional paid-in capital

  1. Sale of treasurystock above cost
  2. Capital structure changes or recapitalizations
  3. Convertible bondor preferred stock conversion
  4. Announcement of a minor stock dividend

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Most popular questions from this chapter

Buttercup Corporation issued 300 shares of \(10 par value common stock for \)4,500. Prepare Buttercup’s journal entry.

(Cash Dividend and Liquidating Dividend) Lotoya Davis Corporation has 10 million shares of common stock issued and outstanding. On June 1, the board of directors voted an 80 cents per share cash dividend to stockholders of record as of June 14, payable June 3

Instructions

  1. Prepare the journal entry for each of the dates above, assuming the dividend represents a distribution of earnings.
  2. How would the entry differ if the dividend were a liquidating dividend?

(Stock Dividends) Kulikowski Inc., a client, is considering the authorization of a 10% common stock dividend to common stockholders. The financial vice president of Kulikowski wishes to discuss the accounting implications of such an authorization with you before the next meeting of the board of directors.

Instructions

  1. The first topic the vice president wishes to discuss is the nature of the stock dividend to the recipient. Discuss the case against considering the stock dividend as income to the recipient.
  2. The other topic for discussion is the propriety of issuing the stock dividend to all “stockholders of record” or to “stockholders of record exclusive of shares held in the name of the corporation as treasury stock.” Discuss the case against issuing stock dividends on treasury shares.

Arantxa Corporation has outstanding 20,000 shares of \(5 par value common stock. On August 1, 2017, Arantxa reacquired 200 shares at \)80 per share. On November 1, Arantxa reissued the 200 shares at $70 per share. Arantxa had no previous treasury stock transactions. Prepare Arantxa’s journal entries to record these transactions using the cost method.

Stock splits and stock dividends may be used by a corporation to change the number of shares of its stock outstanding.

  1. What is meant by a stock split effected in the form of a dividend?
  2. From an accounting viewpoint, explain how the stock split effected in the form of a dividend differs from an ordinary stock dividend.
  3. How should a stock dividend that has been declared but not yet issued be classified in a balance sheet? Why?
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