Stockholders Equity Liabilities There Assets are two sources

Stockholders’ Equity Liabilities There Assets are two sources Stockholders’ of stockholders’Stockholders’ Equity equity.

Stockholders’ Equity Assets Liabilities Stockholders’ Equity 1 Stockholders’ Equity: Paid-in capital: Common stock $xxxxx Retained earnings xxxx Total $xxxxx Stockholder investments

Stockholders’ Equity Assets Liabilities Stockholders’ Equity: Paid-in capital: Common stock $xxxxx Retained earnings xxxx Total $xxxxx 2 Reinvested earnings

Sources of Paid-In Capital Authorized Issued Outstanding Number of Shares

Sources of Paid-In Capital Major Rights that Accompany Ownership of a Share of Stock 1. The right to vote in matters concerning the corporation. 2. The right to share in distribution of earnings. 3. The right to share in assets on liquidation.

Classes of Stockholders The two primary classes of paid-in capital are common stock and preferred stock. The primary attractiveness of preferred stocks is that they are preferred over common as to dividends. Money available for dividends Preferred Stockholders Common Stockholders

Classes of Stockholders Common Stock—the basic ownership of stock with rights to vote in election of directors, share in distribution of earnings, and purchase additional shares. Preferred Stock—A class of stock with preferential rights over common stock in payment of dividends and company liquidation.

Nonparticipating Preferred Stock A nonparticipating preferred stock is limited to a certain amount. Assume 1, 000 shares of $4 nonparticipating preferred stock and 4, 000 shares of common stock and the following: 2005 Net income Amount retained 40, 000 Amount distributed 2006 2007 $20, 000 $55, 000 $62, 000 10, 000 20, 000 $10, 000 $35, 000 $22, 000

Nonparticipating Preferred Stock Amount distributed $10, 000 $35, 000 $22, 000 Preferred dividend (1, 000 shares) 4, 000 Common dividend (4, 000 shares) $6, 000 $31, 000 Dividends per share: $18, 000$ 4. 00 Preferred $ 4. 00 Common $ 1. 50 $ 7. 75 $ 4. 50

Cumulative Preferred Stock So, preferred dividends are two years in arrears. Assume 1, 000 shares of $4 cumulative preferred stock and 4, 000 shares of common stock. No dividends were paid in 2005 and 2006.

Cumulative Preferred Stock On March 7, 2007, the board of directors declares dividends of $22, 000.

Cumulative Preferred Stock Dividends Paid in 2007 Total dividends paid, $22, 000 $4, 000 2005 (In arrears) $4, 000 2006 (In arrears) $4, 000 2007 Preferred Stock (Current dividend) $10, 000 Common Stock

Other Sources of Paid-in Capital On April 20 the city of Moraine donated land to Merrick Corporation as an incentive to relocate its headquarters to Moraine. The land was valued at $500, 000. Apr. 20 Land 500 00 Donated Capital Recorded land donated by the city of Moraine. 500 00