CORPORATIONS: ORGANIZATION AND CAPITAL STOCK TRANSACTIONS
A major source of assets of an entity is owners' equity. Owner's equity of a corporation is called stockholders' equity or shareholders' equity because the owners of the business hold shares of stock as evidence of their ownership claims. Stockholders' equity typically has two major classifications for reporting purposes: paid-in capital (contributed capital) and retained earnings (earned capital). Paid-in capital includes the subclassifications of capital stock and additional paid-in capital. This chapter discusses the issuance of stock and the reacquisition of shares.
SUMMARY OF STUDY OBJECTIVES
- Identify the major characteristics of a corporation. The major characteristics of a corporation are separate legal existence, limited liability of stockholders, transferable ownership rights, ability to acquire capital, continuous life, corporation management, government regulations, and additional taxes.
- Differentiate between paid-in capital and retained earnings. Paid-in capital is the total amount paid in on capital stock. It is often called contributed capital. Retained earnings is net income retained in a corporation. It is often referred to as earned capital.
- Record the issuance of common stock. When companies record the issuance of common stock for cash, they credit the par value of the shares to Common Stock. They record the portion of the proceeds that is above or below par value in a separate paid-in ...