Chapter 12 Acquiring Additional Capital for a Corporation.
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Transcript of Chapter 12 Acquiring Additional Capital for a Corporation.
Chapter 12 Acquiring Chapter 12 Acquiring Additional Capital for a Additional Capital for a
CorporationCorporation
Last chapter we were talking and dealing Last chapter we were talking and dealing with starting up the corporation and with starting up the corporation and generating capital from the original generating capital from the original stockholders. Now we begin to sell the stockholders. Now we begin to sell the other stocks both common and preffered other stocks both common and preffered to people who would like to buy stocks to people who would like to buy stocks from us and our company. from us and our company.
Issuing preferred stock at Par Issuing preferred stock at Par ValueValue
Received cash from Brenda Henson for 800 Received cash from Brenda Henson for 800 shares of $100.00 par value preferred stock at shares of $100.00 par value preferred stock at $100.00 per share, $80,000. Receipt No. 117$100.00 per share, $80,000. Receipt No. 117
Date Account TitleDoc No
Post Ref
A/R Credit
Sales Credit
Sales Disc. Debit
Cash Debit
Debit Credit Debit Credit1-Mar Capital Stock - Preferred 80000 80000
Cash Reciepts Journal
General Sales Tax Payable
Three ways to sell stockThree ways to sell stock
For Par ValueFor Par ValueFor more than par-valueFor more than par-valueFor less than par-valueFor less than par-value
Issuing stock for Issuing stock for more than par-more than par-valuevalue
April 6April 6thth. Received cash from Adam Kellogg for 300 . Received cash from Adam Kellogg for 300 shares of $100.00 par value preferred stock at shares of $100.00 par value preferred stock at $120.00 per share, $36,000. Receipt No. 127$120.00 per share, $36,000. Receipt No. 127
Date Account TitleDoc No
Post Ref
A/R Credit
Sales Credit
Sales Disc. Debit
Cash Debit
Debit Credit Debit Credit1-Mar Capital Stock - Preferred 30000 36000
Paid-in Captial in Excessof Par Value- Preffered 6000
Cash Reciepts Journal
General Sales Tax Payable
When we sell stock for less than par value we When we sell stock for less than par value we sell that stock at a sell that stock at a discount of par value.discount of par value.
Date Account TitleDoc No
Post Ref A/R Credit
Sales Credit
Sales Disc. Debit
Cash Debit
Debit Credit Debit Credit1-Mar Discount on Sale of
Preferred Stock 5000 45000Captial Stock - Preferred 50000
Cash Reciepts Journal
General Sales Tax Payable
August 9. received cash from Hazel Loach for 500 shares of $100.00 par value preferred stock at $90.00 per share, $45,000. Receipt No. 173
Issuing preferred stock for assets Issuing preferred stock for assets other than cash.other than cash.
October 7. Received office equipment from Steen McGee at an agreed October 7. Received office equipment from Steen McGee at an agreed value of $12,000 for 100 shares of $100.00 par value preferred value of $12,000 for 100 shares of $100.00 par value preferred stock. Memo No. 246stock. Memo No. 246
Date Account TitleDoc. No.
Post Ref Debit Credit
Oct. 7 Office Equipment M246 12,000 Capital Stock - Preferred 10000
Paid-in Captial in Excess of Par Value- Preferred 2000
General Journal
Issuing Common Stock with No Par Issuing Common Stock with No Par ValueValue
July 8. received cash from Elizabeth Griffin for 1,000 July 8. received cash from Elizabeth Griffin for 1,000 shares of no-par value common stock at $14.00 per shares of no-par value common stock at $14.00 per share, $14,000. Receipt No. 148share, $14,000. Receipt No. 148
Date Account TitleDoc No
Post Ref A/R Credit
Sales Credit
Sales Disc. Debit
Cash Debit
Debit Credit Debit Credit8-Jul Captial Stock - Common 14000 14000
Cash Reciepts Journal
General Sales Tax Payable
Issuing Common Stock with a Issuing Common Stock with a Stated ValueStated Value
October 10. Received cash from Alice Blake for 100 shares October 10. Received cash from Alice Blake for 100 shares of $10.00 stated value common stock at $12.00 per of $10.00 stated value common stock at $12.00 per share, $1,200. Receipt No. 181share, $1,200. Receipt No. 181
Date Account TitleDoc No
Post Ref A/R Credit
Sales Credit
Sales Disc. Debit
Cash Debit
Debit Credit Debit Credit10-Oct Captial Stock - Common 1000 1200
Paid-in Capital in Excess of Stated Value- Common 200
Cash Reciepts Journal
General Sales Tax Payable
Treasury Stock TransactionsTreasury Stock Transactions
Treasury is simply stock that the Treasury is simply stock that the corporation has reacquired from corporation has reacquired from stockholders. stockholders.
A corporation usually intends to use the A corporation usually intends to use the treasury stock for a specific purpose. treasury stock for a specific purpose.
Treasury stock does not give you any Treasury stock does not give you any privileges like regular stock does. privileges like regular stock does.
It does decrease the number of shares It does decrease the number of shares outstanding if reacquired. outstanding if reacquired.
Buying Treasury StockBuying Treasury Stock
October 24. Paid cash to Francis Burns for 500 shares of October 24. Paid cash to Francis Burns for 500 shares of $10.00 stated value common stock at $12.00 per share $10.00 stated value common stock at $12.00 per share $6,000. check no. 502$6,000. check no. 502
Debit Credit24-Oct Treasury Stock 502 6000 6000
Cash Payments Journal
General Date Account Title
Ck No.
Post Ref
A/P Debit
Purch. Disc. Credit
Cash Credit
Selling Treasury Stock for Original Selling Treasury Stock for Original CostCost
November 21. Received cash from Lisa Vance for 100 shares of November 21. Received cash from Lisa Vance for 100 shares of treasury stock at $12.00 per share, $1,200. treasury stock was treasury stock at $12.00 per share, $1,200. treasury stock was originally bought by LampLight on October 24 at $12.00 per share. originally bought by LampLight on October 24 at $12.00 per share. Receipt No. 205Receipt No. 205
Date Account TitleDoc No
Post Ref A/R Credit
Sales Credit
Sales Disc. Debit
Cash Debit
Debit Credit Debit Credit21-Nov Treasury Stock 12000 12000
Cash Reciepts Journal
General Sales Tax Payable
Selling Treasury Stock for more Selling Treasury Stock for more than Original Costthan Original Cost
November 25. received cash from Mary Long for 200 November 25. received cash from Mary Long for 200 shares of treasury stock at $15.00 per share, $3,000. shares of treasury stock at $15.00 per share, $3,000. Treasury stock was bought on October 24 at $12.00 per Treasury stock was bought on October 24 at $12.00 per share. Receipt No. 216. share. Receipt No. 216.
Date Account TitleDoc No
Post Ref A/R Credit
Sales Credit
Sales Disc. Debit
Cash Debit
Debit Credit Debit Credit21-Nov Treasury Stock 2400 3000
Paid-in Capital from Sale of Treasury Stock 600
Cash Reciepts Journal
General Sales Tax Payable
Selling Treasury Stock for less than Selling Treasury Stock for less than original costoriginal cost
December 22, Received cash from Frank December 22, Received cash from Frank Demetz for 50 shares of treasury stock at Demetz for 50 shares of treasury stock at $10.00 per share, $500.00. treasury stock $10.00 per share, $500.00. treasury stock was originally bought October 24 at was originally bought October 24 at $12.00 per share. Receipt No. 229$12.00 per share. Receipt No. 229
Date Account TitleDoc No
Post Ref A/R Credit
Sales Credit
Sales Disc. Debit
Cash Debit
Debit Credit Debit Credit21-Nov Paid-in Capital from Sale
of Treasury Stock 100 500Treasury Stock 600
Cash Reciepts Journal
General Sales Tax Payable
Capital may come from three Capital may come from three sourcessources
1.1. Using Retained EarningsUsing Retained Earnings
2.2. Selling Additional Capital StockSelling Additional Capital Stock
3.3. Borrowing the fundsBorrowing the funds
Bonds Payable 12-3Bonds Payable 12-3
BondBond A printed long-term promise to pay interest at stated A printed long-term promise to pay interest at stated
intervals.intervals. Bonds and notes payable are very similar, except Bonds and notes payable are very similar, except
bonds run for 5,10, or 20 years. They also tend to be bonds run for 5,10, or 20 years. They also tend to be for larger sums of money. for larger sums of money.
Bond IssueBond Issue A group of bonds representing the total amount of the A group of bonds representing the total amount of the
loan is called a “bond issue”loan is called a “bond issue” A corporation usually sells an entire bond issue to a A corporation usually sells an entire bond issue to a
securities dealer who sells individual bonds to the securities dealer who sells individual bonds to the public. public.
Issuance of a bond Issuance of a bond
July 1 2001. Received cash for the face value of July 1 2001. Received cash for the face value of a 5-year, 12%, $1,000 par value bond issue, a 5-year, 12%, $1,000 par value bond issue, $250,000. Receipt no 246$250,000. Receipt no 246
Date Account TitleDoc No
Post Ref A/R Credit
Sales Credit
Sales Disc. Debit
Cash Debit
Debit Credit Debit Credit1-Jul Bonds payable 250000 250000
Cash Reciepts Journal
General Sales Tax Payable
Paying the interest on a bondPaying the interest on a bond
As the bond matures, a yearly interest payment is paid to a As the bond matures, a yearly interest payment is paid to a trustee, who then divides up the interest to the bond trustee, who then divides up the interest to the bond holders.holders.
250,000 x 12% = 30,000 per year250,000 x 12% = 30,000 per year
Debit Credit
1-Jul Interest Expense 562 30000 30000
Cash Payments Journal
General Date Account Title
Ck No.
Post Ref
A/P Debit
Purch. Disc. Credit
Cash Credit
July 1 2001, Paid cash to bond trustee for annual interest on bond issue, $30,000 Check No. 562
Bond Sinking FundBond Sinking Fund
An amount set aside to pay a bond issue An amount set aside to pay a bond issue when due. when due.
Used to assure the bond holders that the Used to assure the bond holders that the people can pay the issue off when due they people can pay the issue off when due they set money aside in an account called the set money aside in an account called the bond sinking fund. bond sinking fund.
July 1, 2001 Paid cash to bond trustee for annual deposit to bond sinking fund, $50,000 Check No. 563.
Debit Credit
1-JulBond Sinking
fund 562 50000 50000
Cash Payments Journal
General Date Account Title
Ck No.
Post Ref
A/P Debit
Purch. Disc. Credit
Cash Credit
Depositing Cash to sinking fund Depositing Cash to sinking fund and recording income earned.and recording income earned.
The trustee takes the bond sinking fund money The trustee takes the bond sinking fund money and invests it. The interest is also used to help and invests it. The interest is also used to help pay off the loan, by making the yearly loan pay off the loan, by making the yearly loan payments a little smaller.payments a little smaller.
Let say that the interest earned by the investment Let say that the interest earned by the investment was $2000. That makes the annual payment only was $2000. That makes the annual payment only $48,000 instead of $50,000.$48,000 instead of $50,000.
July 1 2002 paid cash to bond trustee for annual deposit to bond sinking fund, $48,000, and recorded interest earned on bond sinking fund, $2000. check no 610.
Debit Credit1-Jul Bond Sinking fund 562 50000 48000
Interest Income 2000
Cash Payments Journal
General Date Account Title
Ck No.
Post Ref
A/P Debit
Purch. Disc. Credit
Cash Credit
Retiring/Paying off the bond issueRetiring/Paying off the bond issue
Sometimes bond issues mature on different dates. Sometimes bond issues mature on different dates. These are called These are called serial bonds.serial bonds.
July 1, 2004 Received notice from bond trustee that bond issue was retired using bond sinking fund, $250,000.00 Memorandum No. 600
Date Account TitleDoc. No. Post Ref Debit Credit
1-Jul Bonds Payable M600 250,000 Bond Sinking Fund 250,000
General Journal
Problems 12-1,2,3,4,Problems 12-1,2,3,4,