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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

Weisberg Corporation has 10,000 shares of \(100 par value, 6%, preference shares and 50,000 ordinary shares of \)10 par value outstanding at December 31, 2017.

Instructions

Answer the questions in each of the following independent situations.

  1. If the preference shares are cumulative and dividends were last paid on the preference shares on December 31, 2014, what are the dividends in arrears that should be reported on the December 31, 2017, statement of financial position? How should these dividends be reported?
  2. If the preference shares are convertible into seven shares of \(10 par value ordinary shares and 3,000 shares are converted, what entry is required for the conversion, assuming the preference shares were issued at par value?
  3. If the preference shares were issued at \)107 per share, how should the preference shares be reported in the equity section?

(Computation of Book Value per Share) Morgan Sondgeroth Inc. began operations in January 2015 and reported the following results for each of its 3 years of operations.

2015 \(260,000net loss 2016 \)40,000 net loss 2017 \(800,000 net income

At December 31, 2017, Morgan Sondgeroth Inc. capital accounts were as follows.

8% cumulative preferred stock, par value \)100;

authorized, issued, and outstanding 5,000 shares \(500,000

Common stock, par value \)1.00; authorized 1,000,000 shares;

issued and outstanding 750,000 shares \(750,000

Morgan Sondgeroth Inc. has never paid a cash or stock dividend. There has been no change in the capital accounts since Sondgeroth began operations. The state law permits dividends only from retained earnings.

Instructions

  1. Compute the book value of the common stock on December 31, 2017.
  2. Compute the book value of the common stock on December 31, 2017, assuming that the preferred stock has a liquidating value of \)106 per share.

Hatch Company has two classes of capital stock outstanding: 8%, \(20 par preferred and \)5 par common. At December 31, 2017, the following accounts were included in stockholders鈥� equity.

Preferred Stock, 150,000 shares \( 3,000,000

Common Stock, 2,000,000 shares 10,000,000

Paid-in Capital in Excess of Par鈥擯referred Stock 200,000

Paid-in Capital in Excess of Par鈥擟ommon Stock 27,000,000

Retained Earnings 4,500,000

The following transactions affected stockholders鈥� equity during 2018.

Jan.1 30,000 shares of preferred stock issued at \)22 per share.

Feb.1 50,000 shares of common stock issued at \(20 per share.

June 1 2-for-1 stock split (par value reduced to \)2.50).

July 1 30,000 shares of common treasury stock purchased at \(10 per

share. Hatch uses the cost method.

Sept.15 10,000 shares of treasury stock reissued at \)11 per share.

Dec.31 The preferred dividend is declared, and a common dividend of 50垄

per share is declared.

Dec. 31 Net income is $2,100,000.

Instructions

Prepare the stockholders鈥� equity section for Hatch Company at December 31, 2018. Show all supporting computations.

Where in the financial statements is preferred stock normally reported?

(Dividend Entries) The following data were taken from the balancesheet accounts of Masefield Corporation on December 31, 2016.

Current assets \(540,000

Debt investments (trading) 624,000

Common stock (par value \)10) 500,000

Paid-in capital in excess of par 150,000

Retained earnings 840,000

Instructions

Prepare the required journal entries for the following unrelated items.

  1. A 5% stock dividend is declared and distributed at a time when the market price per share is \(39.
  2. The par value of the common stock is reduced to \)2 with a 5-for-1 stock split.
  3. A dividend is declared January 5, 2017, and paid January 25, 2017, in bonds held as an investment. The bonds have a book value of \(100,000 and a fair value of \)135,000.
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