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Chapter 15: Question 5Q (page 810)

Explain each of the following terms: authorized capital stock, unissued capital stock, issued capital stock, outstanding capital stock, and treasury stock.

Short Answer

Expert verified

Authorized capital stock, unissued capital stock, issued capital stock, outstanding capital stock, and treasury stock are all components of stockholder鈥檚 equity.

Step by step solution

01

Meaning of Authorized Capital Stock

Per the company鈥檚 constitution, authorized capital refers to the maximum amount of capitala company can issue to its shareholders.

02

Meaning of Unissued Capital Stock

Unissued shares are shares of companies thatdon鈥檛circulate or don鈥檛 seem to be soldby the corporate on the market.

03

Meaning of Issued Capital Stock

The issued capital stock issolelythe value of the sharesthat a company offers to investors.

The number of shares issued is generally the amount of subscribed capital, although none of these amounts may exceed the authorized amount.

04

Meaning of Outstanding Capital Stock

The term 鈥渙utstanding share capital鈥� refers to the total shares issued under subscription contractsbinding on the subscriber.

To calculate outstanding capital stock, add both preferred and common shareoutstanding and subtract it with the number of treasury shares.

05

Meaning of Treasury Stock

Treasury shares, also called stock orreacquired shares, talk over with previously outstanding shares which the company repurchases.

A company can benefit from Treasury stock by including it as part of employee stock option plans.

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Most popular questions from this chapter

(Stock and Cash Dividends) Earnhart Corporation has outstanding 3,000,000 shares of common stock with a par value of \(10 each. The balance in its Retained Earnings account at January 1, 2017, was \)24,000,000, and it then had Paid-in Capital in Excess of Par鈥擟ommon Stock of \(5,000,000. During 2017, the company鈥檚 net income was \)4,700,000. A cash dividend of \(0.60 a share was declared on May 5, 2017, and was paid June 30, 2017, and a 6% stock dividend was declared on November 30, 2017, and distributed to stockholders of record at the close of business on December 31, 2017. You have been asked to advise on the proper accounting treatment of the stock dividend.

The existing stock of the company is quoted on a national stock exchange. The market price of the stock has been as follows.

October 31, 2017 \)31

November 30, 2017 \(34

December 31, 2017 \)38

Instructions

  1. Prepare the journal entry to record the declaration and payment of the cash dividend.
  2. Prepare the journal entry to record the declaration and distribution of the stock dividend.
  3. Prepare the stockholders鈥� equity section (including schedules of retained earnings and additional paid-in capital) of the balance sheet of Earnhart Corporation for the year 2017 on the basis of the foregoing information. Draft a note to the financial statements setting forth the basis of the accounting for the stock dividend, and add separately appropriate comments or explanations regarding the basis chosen.

(Dividends and Stockholders鈥� Equity Section) Anne Cleves Company reported the following amounts in the stockholders鈥� equity section of its December 31, 2016, balance sheet.

Preferred stock, 10%, \(100 par (10,000 shares authorized, 2,000 shares issued)

\)200,000

Common stock, \(5 par (100,000 shares authorized, 20,000 shares issued)

100,000

Additional paid-in capital

125,000

Retained earnings

450,000

Total

\)875,000

During 2017, Cleves took part in the following transactions concerning stockholders鈥� equity.

  1. Paid the annual 2016 \(10 per share dividend on preferred stock and a \)2 per share dividend on common stock. These dividends had been declared on December 31, 2016.
  2. Purchased 1,700 shares of its own outstanding common stock for \(40 per share. Cleves uses the cost method.
  3. Reissued 700 treasury shares for land valued at \)30,000.
  4. Issued 500 shares of preferred stock at \(105 per share.
  5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for \)45 per share.
  6. Issued the stock dividend.
  7. Declared the annual 2017 \(10 per share dividend on preferred stock and the \)2 per share dividend on common stock. These dividends are payable in 2018.

Instructions

  1. Prepare journal entries to record the transactions described above.
  2. Prepare the December 31, 2017, stockholders鈥� equity section. Assume 2017 net income was $330,000.

Hinges Corporation issued 500 shares of \(100 par value preferred stock for \)61,500. Prepare Hinges journal entry.

Green Day Corporation has outstanding 400,000 shares of \(10 par value common stock. The corporation declares a 5% stock dividend when the fair value of the stock is \)65 per share. Prepare the journal entries for Green Day Corporation for both the date of declaration and the date of distribution.

On February 1, 2017, Buffalo Corporation issued 3,000 shares of its \(5 par value common stock for land worth \)31,000. Prepare the February 1, 2017, journal entry.
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