Stockholders’ equity

Stockholders’ equity is the total of the claims against a corporation that are held through ownership rights. Stockholders’ claims differ from liabilities in several ways. First, there is generally no preestablished due date on which the owners’ claims have to be satisfied. Second, owners face a much more difficult situation than creditors if they are … Read more

Capital stock

Capital stock consists of claims held by owners arising from investments in the firm. A corporation is authorized by the state government to come into existence and to issue shares. Once authorized, the corporation’s shares fall into one of these four categories: Unissued, unsubscribed shares which have not been committed for issuance to anyone. Unissued, … Read more

Additional Paid-in Capital (APIC)

What is Additional Paid-in Capital (APIC)? – Definition Additional Paid-in Capital (APIC) is the amount invested in a corporation by its owners, in addition to the par value of any capital stock. Stockholders may have claims against the corporation arising from payments into the company from events other than operations or the issuance of stock. … Read more

Retained Earnings (RE)

Retained Earnings – Definition Retained earnings are created as stockholder claims against the corporation because it has achieved profits. Like all other equity claims, RE is not associated with any particular assets and certainly do not constitute a pool of cash or other assets. Four things can occur that change the amount of retained earnings; … Read more

Stock Split

What is a Stock Split? – Definition The stock split is an increase in the number of outstanding shares with a proportionally decreasing par or stated value. A stock split happens when a corporation increases the number of its common shares and proportionally decreases its par or stated value. The end result is a doubling, … Read more

Cash Dividend

What is the cash dividend? – Definition The cash dividend is the payment made by a company, from its earnings, to its shareholders in the form of Cash. Most investors purchase either common or preferred stock with the expectation of receiving cash dividends. Explanation The amount and regularity of cash dividends are two of the … Read more

Property dividends

Property Dividends – Definition In very limited circumstances, the board of directors of a firm may choose to distribute some asset other than cash to its stockholders. The asset must be sufficiently divisible in order that it can be split up in proportion to the number of shares held. For this reason, property dividends are … Read more

Small stock dividends

What are small stock dividends? The treatment of small stock dividends differs from the one used for splits effected as dividends because they serve fundamentally different purposes. A small stock dividend is treated as if it is a cash dividend reinvested in capital stock. Consequently, Retained Earnings should be debited for the market value of … Read more

Dividends on preferred stock

In the absence of specification otherwise, holders of preferred stock are entitled to receive dividends in any given year only up to a stated maximum. If they fail to receive the maximum, common stockholders receive no dividends at all. In order to make the preferred shares more marketable and thereby lower the dividend rate, many … Read more

Liability dividends

When the board of directors establishes a longer than normal time period between the date of record and the date of payment, the dividend is identified as a liability dividend. The arrangement may call for the accrual of interest on the liability and the distribution of notes to the stockholders (known as scrip). The only … Read more