Beruflich Dokumente
Kultur Dokumente
ACCOUNTING
Sixth Canadian Edition
KIESO, WEYGANDT, WARFIELD, IRVINE, SILVESTER, YOUNG, WIECEK
Prepared by
Gabriela H. Schneider, CMA; Grant MacEwan College
CHAPTER
16
Shareholders’ Equity:
Contributed Capital
Learning Objectives
1. Discuss the characteristics of the corporate form of
organization.
2. Identify the rights of shareholders.
3. Explain the key components of shareholders’ equity.
4. Explain the accounting procedures for issuing
shares.
5. Identify the major reasons for repurchasing shares.
Learning Objectives
6. Explain the accounting procedures required for
reacquiring, retiring, and canceling shares.
7. Describe the major features of preferred shares.
8. Distinguish between debt and equity.
9. Identify items reported as contributed surplus.
10. Identify the major disclosure requirements.
Shareholders’ Equity
Share Capital
Contributed
Contributed Capital
Surplus
Retained
Earnings Earned
Capital
Defining Capital
• Legal capital (stated capital) – the full price
received for shares issued
• If par value shares are issued, then legal/stated capital
= par value
• Par value shares are not permitted under CBCA
• Permitted under some provincial jurisdictions (see Appendix)
• Accounting definition of capital
• Shareholders’ equity which includes:
• Share capital (the legal/stated capital as defined above)
• Contributed surplus (equity transactions not specifically
included elsewhere)
• Retained earnings (all undistributed income that remains
invested in the business)
Major Sources of Changes in
Shareholders’ Equity
All Transactions and Events That Cause
Changes in Shareholders’ Equity
Revenues Gains
& and Investments Distributions
Expenses Losses by Owners to Owners
Accounting for the
Issuance of Shares
• Shares basic
• Shares sold on a subscription basis
• Shares issued in combination with other
securities
• Shares issued in non-monetary
transactions
• Accounting for costs related to issuance
Shares Issue - Basic
Cash 2,000
Share Capital 2,000
Shares Sold by Subscription
• Shares are sold, with “instalment”
payments
• Shares are not issued, and any rights
are not given (e.g., voting, dividends)
until the full price is paid and the
contract is settled
• Dividends may be attached to some
subscription shares, once the initial
payment is received
Shares Sold by Subscription
Accounts involved in share subscription transaction
• Shares Subscribed
• Set up a separate one for each type/class of share
• An equity account, reported below the respective share
capital account on the Balance Sheet
• Subscription Receivable
• Normally considered a current asset
• May be reported as a contra account to the Shares
Subscribed account in equity section of the Balance Sheet
• Share Capital
• Credited only when the subscription is paid in full, or
settled in some other manner, in the case of default
Shares Sold by Subscription
Cash 2,000
Subscription Receivable 2,000
Shares Sold by Subscription
If all payments are made as scheduled, the
entries would be:
Cash 8,000
Subscription Receivable 8,000
Shares Subscribed 10,000
Share Capital 10,000
Given:
1,000 common shares and 1,000 preferred shares
issued for a total of $30,000
Common share market value = $20.00 per share
Preferred share market value = $12.00 per share
Shares Issued
With Other Securities
First Step: Find the total market value of the shares
Common: 1,000 @ $20.00 = $20,000
Preferred: 1,000 @ $12.00 = 12,000
Total Market Value $32,000
Cash 9,500
Contributed Surplus 500
Share Capital 10,000
Reacquisition of Shares
Reasons for the reacquisition of a corporation’s own shares
• Have enough shares on hand to meet employee stock option
contracts
• Reduce the shares outstanding to increase EPS
• Buy out a particular ownership interest
• Make a market in the company’s shares
• Reduce the operations of the business
• Meet the needs of a potential merger
• Change the debt-to-equity ratio
• Settle a debt
• Provide a kind of boost to shareholders (remaining shareholders
end up with a larger portion of the entity)
• Fulfill the terms of a contract
• Satisfy a claim from a shareholder
• Change from a public to a private corporation
Reacquisition of Shares
• Shares may be retired when reacquired
• May also (in limited circumstances and jurisdictions)
become Treasury Stock (see Appendix)
• In either case, the accounts affected are:
• Share Capital
• Contributed Surplus
• Retained Earnings
• Treasury Stock (for Treasury Stock only)
Reacquisition of Shares -
Retired
• Share capital is debited with the original issue or
assigned value only
• The difference is then allocated to:
• Contributed Surplus (to an amount up to any
contributed surplus created by the cancellation or
resale of the same class of share)
• Contributed Surplus (pro rata share of the portion of
contributed surplus resulting from other transaction)
• Retained Earnings
• Preference as to dividends
• Preference as to assets in the event of
liquidation
• Convertible into common shares
• Callable (redeemable) at the option of the
corporation
• Retractable at the option of the shareholder
• Nonvoting
Preferred Stock - Features