Equity Transactions

STOCKHOLDERS’ EQUITY

Accounting for Equity Transactions
1. Issuance of common stock: Par value portion is recorded in common stock. Price over the par value is recorded in the “Paid-in capital in excess of par value of common stock.”

2. Issuance of preferred stock: Par value portion is recorded in preferred stock. Price over the par value is recorded in the “Paid-in capital in excess of par value of preferred stock.”

3. Purchase of treasury stock: Purchase amount is recorded as treasury stock on debit side. Treasury stock is not recorded as an asset, but subtracted from stockholders’ equity.

4. Declaration of cash dividends: When cash dividends are declared, cash dividends (or retained earnings) are recorded on debit side. Dividends payable is recorded on credit side.

5. Payment of cash dividends: Debit to dividends payable and credit to cash.

6. The effects of cash dividends: Decrease in retained earnings, total stockholders’ equity and cash.

7. Stock dividends: Current shareholders receive additional shares in proportion to the number of shares held.

8. Stock dividends increase common stock and total paid-in capital. Stock dividends decrease retained earnings. Stock dividends do not change total stockholders’ equity.

9. 2-for-1 stock split: Number of shares doubles and the par value becomes half.

10. Stock split increases the number of shares outstanding, decreases par value. Stock split does not change paid-in capital, retained earnings and total stockholders’ equity.


 

© AccountingInfo.com