with some very unusual characteristics. For example” there, are “participating per ferrets allowing preferred stockholders to participate in increases in the common stock dividend:
There also are· “super preferred,” granting enormous voting rights perhaps the controlling interest the preferred stockholders. And there are- “redeemable preferreds,” allowing preferred shareholders to their shares back to the corporation at an agreed-upon. price: We will leave further discussion of such unusual features of preferred stock to more advanced courses in accounting and corporate finance.
Stock issued for Assets Other Than Cash ‘CorPorations .sell their capital stock for cash and use the to buy the various types of assets needed in the business.
Sometimes, however, a corporation may issue shares of its capital stock in a direct exchange for land, buildings, or other assets Stock l1)ay also be issued in payment for services rendered by attorneys and promoters’ in the formation of the corporation.When a corporation issues capital stock, in. exchange for services or for assets other than cash; the transaction should be recorded at the current market value of the goods or services- received.
For some types’ of assets such as land or buildings, the services of a firm of professional appraisers may be useful in establishing current market value. Often, the evidence as to the market value of these goods or services is the mar .kit value of the shares issued in.exchange, example, that a company issues 10,000 ‘shares of its $1 par value common.stock in exchange for land.
Competent appraisers may have differing opinions as to the market value of the land. But ‘let us assume that the company’s stock is selling on a stock exchange, for $90 per share. It is logical to say that the cost of the land to the, company is $900,000, the market value . of the shares issued in exchange.
In summary, these transactions should be recorded at the current market value of either
(1) the assets received or
(2) the shares. issued in determined objectively Once rec valuation has I n decided, the entry to record the issuance of the stock in exchange for use Land.
Common Stock Additional Paid-in Capital: Common St To record the, issuance of 1o.ooo shares of $1 par value common stock exchange for market value ($90 . per share) used as basis valuing 890,000 Subscriptions to Capital’Stock Small’. newly Investors an opportunity to “subscribe” to shares of the company’s decapitator a subscription plan, the investor agreed to purchase specified numbers of shares at a stated price at a future date, often by making a series of installment payments.
The stock is issued after the entire price has’ been collected.Selling stock through subscriptions is similar to selling merchandise on a layaway plan. One ‘reason for this procedure is to attract small investors. Another reason is 10 appeal to investors who prefer not to invest: cash.until the corporation is ready to start business operations.
Accounting for subscriptions to capital stock is explained and illustrated, in advanced accounting courses.Book Value per Share of Common Stock Because the’ equity of each stockholder in a corporation is determined If by the number of shares he or she owns, an accounting measurement of interest to many stockholders is book, value per share of ‘common stock, Book value per share is equal to”the net assets represented ‘by one share of stock.
The term net assets means total assets ‘minus -total liabilities; in other words, net assets’ are equal to total stockholders Thus, incorporation that has issued common stock.only, the book ” value per share computed by dividing’ total stockholders’ equity. by ” the number of shares outstanding (or subscribed).
For example. assume that .a corporation has 4,000 shares of capital “stock outstanding and the stockholders’ equity section of the balance sheet is as follows: Tile sharpshooters $39 it.is computed be dividing the stock hold+TS’equity of $120 by toe 4!OOO, shares of outstanding stock. In computing book ‘value, we are con concerned with the number of. authorized shares but Mesolithic the outstanding shares,
• because the’ total of the outstanding’ shares re~resents. 100%.of the stockholder,TS’ equity.Book Value Wh,n .a Company His 80th Preferred and Common Stock Book value is ” usually confused ‘only for common stock, If a company has both preferred a common stock outstanding, the computation of look value per share of common stock requires two, steps. First, the r~derription value or call price of the entire’ preferred