Corporations: Paid-in Capital, Retained Earnings, Dividends, and Treasury Stock

Read this chapter, which outlines the different sources of paid-in capital and how they are presented on the balance sheet. This chapter also covers treasury stock, dividends, stock splits, and price-per-share and price-per-earnings ratios.

Paid-in (or contributed) capital

As you have learned in the preceding chapter, paid-in capital, or contributed capital, refers to all of the contributed capital of a corporation, including the capital carried in the capital stock accounts. The general ledger does not contain an account titled "Paid-In Capital". Instead, paid-in capital is a category, and companies establish a separate account for each source of paid-in capital.

In Exhibit 21, we summarize several sources of stockholders' equity and list general ledger account titles used to record increases and decreases in capital from each of these sources. Chapter 12 discussed some of these general ledger accounts. This chapter discusses other general ledger accounts that record sources of stockholders' equity.

The stockholders' equity section of a balance sheet shows the different sources of the corporation's paid-in capital because these sources are important information. For example, these additional sources may be from stock dividends, treasury stock transactions, or donations.

Sources of stockholders' equity Illustrative general ledger account titles
I. Capital paid in (or contributed)
   A. For, or assigned to, shares:
       1. Issued to the extent of par or stated value or the amount received for shares without par or stated value Common stock
        2. To be distributed as a stock dividend. 5% preferred stock
       3. In addition to par or stated value: Stock dividend distributable – common (preferred)
           a. In excess or par. Paid-In capital in Excess of par value – Common (preferred)
           b. In excess of stated value.
Paid-In capital in excess of stated value – Common (preferred)
           c. Resulting from declaration of stock dividends Paid-In capital – Stock Dividends
           d. Resulting from reissue of treasury stock at a price above its acquisition price. Paid -In capital – Common (preferred) Treasury stock transactions
    B. Donations (gifts), whether from stockholders or from others. Paid-in Capital - Donations
II. Capital accumulated by retention of earnings (retained earnings).
    A. Appropriated retained earnings. Appropriation per loan agreement
    B. Free and unappropriated retained earnings. Retained earnings (Unappropriated)

Exhibit 21: Sources of stockholders' equity