Key Terms
DEBT-TO-EQUITY RATIO
Total debt divided by total equity. Lenders watch this closely.
Two classes
Common stock and preferred stock. If a company issues only one class, it must be common stock.
Example
$1,000 depreciation error from prior year, 30% tax rate. Net impact = $1,000 x (1 - 0.30) = $700 reduction to beginning
Par value
Legal amount assigned in charter; not economically significant; serves as legal capital Stated value: board-assigned amo
Market value
What the stock actually trades for. Does NOT appear in the corporation's accounting records.
No-par stock
No par value in charter. Board assigns a stated value, which functions identically to par value in the journal entries.
Stock discount
Stock issued below par value. Risky - shareholder can be held liable for the difference if the company liquidates and cr
Common Stock
Carries the par (or stated) value of all shares issued. Credit side only.
Additional Paid-in Capital (APIC)
The excess paid over par value. Separate APIC accounts for each class of stock.
Debit Cash
1,000 x $45 = $45,000 Credit Preferred Stock: 1,000 x $8 = $8,000 Credit APIC - Preferred: 1,000 x ($45 - $8) = $37,000
Debit Legal Services Expense
$8,000 Credit Common Stock: 2,000 x $1.50 = $3,000 Credit APIC - Common: $8,000 - $3,000 = $5,000
Treasury stock
Shares a corporation buys back from its own investors. Still counted as issued; NOT counted as outstanding.
Repurchase entry
Debit Treasury Stock (cost x shares) Credit Cash (cost x shares)
Above cost
Debit Cash (selling price x shares) Credit Treasury Stock (cost x shares) Credit APIC - Treasury Stock (difference = ext
Below cost
Debit Cash (selling price x shares) Debit APIC - Treasury Stock (for any existing credit balance first) Debit Retained E