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Stockholders' Equity and Accounting for Paid-in Capital - YouTube
Channel: Learn Accounting with Iana Zemniakova, CPA
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hello everyone and welcome to financial
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accounting today we continue examining
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corporations
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we will learn what stockholders equity
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is
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how to record stock issuing
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account for paid in capital and prepare
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the equity section of a corporate
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balance sheet
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stockholders equity is the amount of
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assets remaining in a business after
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settling all liabilities
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stockholders equity is calculated as the
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capital given to a business by its
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stockholders
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plus earnings generated by the company's
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operations
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less any dividends
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remember we studied the accounting
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equation in earlier videos
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assets are equal liabilities plus owners
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or stockholders equity
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based on this equation we can calculate
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stockholders equity as assets minus
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liabilities
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this amount appears in the balance sheet
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and the statement of stockholders equity
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let's briefly review the rules of debit
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and credit
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we will need them later today when we
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discuss general journal entries to
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record issue in stock
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assets are increased by debit and
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decreased by credit
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liabilities and owner's equity are
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increased by credit and decreased by
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debit
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if you need to spend more time on the
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accounting equation or the rules of
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debit and credit i'd suggest watching
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the video the accounting cycle capturing
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economic events
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i will post the link to this and other
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helpful videos about the rules of debit
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and credit in the description box
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now let's take a closer look at the
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rules of owners or stockholders equity
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capital stock is an investment it
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increases owners or stockholders equity
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therefore it is increased by credit and
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decreased by debit
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dividends revenue and expenses are a
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part of retained earnings which is a
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part of stockholders equity
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dividends and expenses decrease retained
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earnings
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and stockholders equity and therefore
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have the opposite rules
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they are increased by debit and
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decreased by credit
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revenue increased retained earnings and
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stockholders equity
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revenue is increased by credit and
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decreased by debit
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stockholders equity can be increased in
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two ways
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first equity is increased by issuing
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stock to investors and this is an
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increase in paid-in capital
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second equity is increased by the
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retention of profits earned by the
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corporation
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this is an increase in retained earnings
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before we discuss how stock is issued to
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investors let's review a couple of terms
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related to stock
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authorized shares is the maximum number
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of shares of stock that can be sold to
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the public
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the number of authorized shares is
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identified in the corporation's
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corporate charter issued by the state
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authorized shares can be classified as
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issued and unissued
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and issued shares are shares of stock
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that have never been sold to the public
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and issued shares are shares of stock
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that at some point have been sold to the
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public
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not all shares that have been sold to
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the public are outstanding
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issued shares can be classified as
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outstanding shares and treasury shares
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outstanding shares are shares that
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stockholders currently own
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treasury shares are shares that once
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were owned by stockholders
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but were repurchased by the corporation
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in the stock market
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thus the corporation is now the owner of
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the shares
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corporations usually repurchase stock to
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increase the shares needed in the
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acquisition of another company
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limit the shares available for a hostile
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takeover
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and increase shares for use in employee
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stock options programs
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treasury stock has no voting or dividend
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rights
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treasury stock is a contra equity
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account and is subtracted from the
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equity section on the balance sheet
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we will take a closer look at the
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treasury stock in a separate video
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par value is an arbitrary amount
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assigned to each share of stock in the
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company's charter
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par value is usually a nominal amount
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it is not related to market value
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which is the selling price of a share of
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stock
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stock can have a power value
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not have a par value or have a stated
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value let's look at how to account for
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par value stock
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accounting entries for stated value
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stock
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are very similar to accounting for par
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value stock
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all the proceeds are credited to the
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common stock account when a company has
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no power stock
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when par value stock is sold for cash
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the common stock account is credited for
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the par value of the stock sold
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remember that par value and market value
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are not related
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the difference between the par value of
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the stock
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and the market value of the stock is
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credited to contributed capital in
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excess of bar
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or paid in capital
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if the amount of par value in the common
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stock account and the amount in the
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contributed capital in excess of par
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were added together the result would be
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the market value of the sale of the
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stock
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let's record the entry for the issue of
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ten thousand shares of two dollars per
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value common stock for 25 dollars per
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share
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to record this stock issue
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debit cash for the market value of the
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stock sold
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10 000 shares times 25 dollars per share
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credit common stock for the par value of
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the shares sold
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10 000 shares times two dollars per
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share
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finally credit contributed capital in
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excess of par value for the excess of
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market over par
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10 000
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times 23 dollars per share
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this slide shows how to report the stock
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on the balance sheet
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the twenty thousand dollars is the par
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value of the stock sold
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and the two hundred and thirty thousand
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dollars is the access over par value for
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the stock
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these two accounts total 250 000
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and equal the amount of the cash
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received for the sale of the stock
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i hope you found this video helpful if
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you did please make sure to subscribe
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hit that like button and ring the
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notification bell so you are notified
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when we release more videos like this
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thank you all so much for watching and i
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hope to see you all again on the next
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video
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[Applause]
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you
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