Financial Accounting: Corporations: Paid-in Capital & the Balance Sheet

• published: 30 May 2013
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Introduction to Financial Accounting Corporations: Paid-in Capital & the Balance Sheet (Chapter 12) April 24th, 2013 by Professor Victoria Chiu The Professor begins the lecture by reviewing the topics (from chapter 12) that she began in the previous class session. After that, she displays and explains the journal entries involved in the accounting for the issuance of common stock. It is very similar to the issuance of bonds. For example, if common stock is issued at par, simply debit cash and credit common stock. However, if common stock is issued above par, while the debit to cash and credit to common stock will remain, an additional credit to a new account, "paid in capital in excess of par" would have to be credited for the difference between the par-value of the stock sold versus the actual price it was sold at. After this, the Professor goes on to display the Stockholder's Equity section of the balance sheet to show where paid in capital (common stock, paid-in capital excess of par) are listed. The Professor also walks through an example involving the journalization of stock issued above par. Following this, the Professor explains and displays the journal entries of stock with no-par (no face value). However, some no-par value stock has a stated value which, for accounting purposes, is simply treated as par value. The only difference is that if you issue the stock for higher than the stated value, you would credit paid in capital excess of STATED value rather than paid in capital in excess of PAR. Common stock can also be issued in exchange for assets other than cash, such as a building (or other plant assets of the sort). In these situations, rather than debiting cash, you would debit the market value of the asset you have acquired. Common stock is credited as always, and if the market value of the asset received is above the par-value (or stated value, if it is no-par), then "paid-in capital in excess of par (or stated value)". A problem is walked through to further illustrate this. The Professor returns to yet another illustration of the balance sheet to show the order in which items are listed under the "paid-in-capital" category. Preferred stock is listed first, as well as any paid-in capital in excess of par account associated with preferred stock. Common stock is listed second, along with any paid-in capital in excess of par account connected to common stock. After totaling both of these up, retained earnings is listed last before adding up everything listed under stockholder's equity. Next, the Professor goes over closing entries. The first closing entry involves closing the revenue account, which would involve a debit to revenue and credit to income summary. Closing expenses would involve a debit to income summary and credit to expenses. Closing the income summary account involves a debit to income summary and a credit to retained earnings. The Professor also goes over the idea of a deficit balance, which can occur when expenses exceed revenues. When that happens, rather than closing the income summary account with a debit, it would be closed with a credit while the retained earnings account is debited. This tells us that we have a loss. Following this, dividends are discussed in depth (including the declaration date, date of record, and payment date) as well as the journal entries involved when issuing dividends out (and the journal entries associated with each of the three important dividend related dates). It is also shown how to divide dividend payments between preferred and common stockholders. ------ QUICK NAVIGATION ------ Video Begins with Recap of Previous Lecture Accounting for Common Stock Issuance: 5:16 Stockholder's Equity Presentation: 11:17 Exercise S12-5 - Issuing Stock & Interpreting Stockholder's Equity: 16:34 Exercise S12-5 Solution Review: 18:37 Accounting for Common Stock Issuances (no-par value): 22:06 Accounting for Stock Issuances (no-par value with stated value): 26:32 Accounting for Stock Issuances (with par value, issued for non-cash assets): 30:02 Accounting for Preferred Stock Issuance (issued at par & issued in excess of par): 33:35 Exercise E12-15 - Issuing Stock: 38:23 Exercise E12-15 Solution Review: 44:02 Stockholder's Equity on the Balance Sheet: 50:12 Illustrate Retained Earnings Transactions: 54:38 Retained Earnings: 54:53 Deficit Balance: 59:15 [Accounting for] Cash Dividends: 1:01:40 Declaring & Paying Dividends 1:04:01 Dividing Dividends Between Preferred & Common: 1:09:52 ADDITIONAL TAGS: Closing Entry, Net Loss, Income Statement, Financial Statement, Deficit Balance, Deficit, Dividends, Cash Dividends, Declaration, Declared, Declaration Date, Date of Record, Payment Date, Investors, Legal Capital, Preferred Dividends, Arrears, Dividends Payable, Cutoff Date, Percent, Percentage, Per Share, Dollar, Common Dividends,