Liquidating dividend example

Many corporations employ independent registrars and transfer agents who specialize in providing services for recording and transferring stock.

The basic ownership interest in a corporation is represented by common stock.

For example, if 200 shares of common stock with a par value of per share are sold for 0, the following journal entry would be made: Cash…………………………………………………………………………………….. 400 Paid-in Capital in Excess of Par…………………………………………….

100 The capital stock account is always credited at the issue date for the par value of the stock times the number of shares issued.

In the absence of restrictive provisions, each share carries the right to share proportionately in: (a) profits, (b) management, (c) corporate assets upon liquidation, and (d) any new issues of stock of the same class (preemptive right).

The transfer of ownership between individuals in the corporate form of organization is accomplished by one individual selling or transferring shares to another individual.

Earned capital is the capital that develops from profitable operations.

Stockholders’ equity is the difference between the assets and the liabilities of the company—also known as the residual interest.

Contributed capital (paid-in capital) is the total amount paid in on capital stock.The two methods of allocation used are (a) the proportional method and (b) the incremental method.The proportional method is used when the fair value for each class of security is readily determinable, and the incremental method is used the fair value of only one class of stock is known.Par value associated with most capital stock issues is generally very low.Low par values help companies avoid the contingent liability associated with stock that is issued below par.

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