14/06/2015 ComponentsofStockholders'Equity

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Financial Statements - Components of Stockholders' EquityFinancial Statements - Components of Stockholders' EquityWithin this section we'll identify the components that comprise the contributed capital part of stockholders' equity.Within this section we'll identify the components that comprise the contributed capital part of stockholders' equity.

Contributed CapitalContributed CapitalContributed capital is the total legal capital of the corporation (par value of preferred and common stock) plus the paid-in capital.Contributed capital is the total legal capital of the corporation (par value of preferred and common stock) plus the paid-in capital.

Par valuePar value - This is a value of preferred and common stock that is arbitral (artificial); it is set by management on a per share - This is a value of preferred and common stock that is arbitral (artificial); it is set by management on a per sharebasis. This artificial value has no relation or impact on the market value of the shares.basis. This artificial value has no relation or impact on the market value of the shares.

Legal capital of the corporationLegal capital of the corporation - This is par value per share multiplied by the total number of shares issued. - This is par value per share multiplied by the total number of shares issued.

Additional paid-in capital (paid-in capital)Additional paid-in capital (paid-in capital) - This is the difference between the actual value the company sold the shares for - This is the difference between the actual value the company sold the shares forand their par value.and their par value.

Example: Example: Company XYZ issued 15,000 preferred shares to investors for $300,000.Company XYZ issued 15,000 preferred shares to investors for $300,000.Company XYZ issued 30,000 common shares to investors for $600,000.Company XYZ issued 30,000 common shares to investors for $600,000.Par value of preferred shares is $7 per share.Par value of preferred shares is $7 per share.Par value of common shares is $15 per share.Par value of common shares is $15 per share.

Legal capitalLegal capital::Preferred shares: $105,000(15,000 x $7)Preferred shares: $105,000(15,000 x $7)Common shares: Common shares: $450,000$450,000(30,000 x $15)(30,000 x $15)Legal capital $555,000Legal capital $555,000

Paid-in capital:Paid-in capital:Preferred shares: $195,000 ($300,000-$105,000)Preferred shares: $195,000 ($300,000-$105,000)Common shares: Common shares: $150,000 $150,000 ($600,000-$450,000)($600,000-$450,000)Paid-in capitalPaid-in capital $345,000$345,000

Legal capital + Paid-in capital = Contributed CapitalLegal capital + Paid-in capital = Contributed Capital

Look Out!Look Out!If issued common shares have no par value, the amount the stock is sold for constitutes common stock. Preferred stock isIf issued common shares have no par value, the amount the stock is sold for constitutes common stock. Preferred stock isalways sold with a stated par value.always sold with a stated par value.

Components of Stockholders' EquityComponents of Stockholders' EquityBy By InvestopediaInvestopedia

14/06/2015 ComponentsofStockholders'Equity

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