2. CHARACTERISTIC
S
Separate Legal Personality
Transferable Units of
Ownership
Limited Liability of
Stockholders
Continuity of Existence
3. FORMATION / INCORPORATION
Drafting the Articles of Incorporation and file it
to the Securities and Exchange Commission
(SEC).
Treasurer’s Affidavit showing that at least 25%
of the total authorized shares of Capital Stock
has been subscribed and at least 25% of the
subscription has been paid.
If approved, SEC signs the Charter or Certificate
of Incorporation and returns it to the applicants.
Stockholders’ meeting is held to adopt the by-
laws.
4. Nature of Capital Stock
Ownership of a corporation
Voting Right
Dividend Right
Liquidation Right
Pre-emptive Right
5. PAR VALUE
Nominal amount or price at which a corporation
should sell its stock to the public.
Premium on Capital Stock
Stocks are sold at a higher price than Par Value
Example:
A corporation has an authorized capital stock of P500 000
which is divided into 5 000 shares having a par value of 100
per share. If 100 shares are sold at P110 each, How much is
the Premium in Capital Stock?
Premium in Capital stock = P110 -100 par x 100 shares
= P1 000
6. Discount on Capital Stock
Selling price below
PAR
Example:
A corporation has an authorized capital stock of P500 000
which is divided into 5 000 shares having a par value of 100
per share. If stocks are sold for P80 per share. How much is
the Discount in Capital Stock?
Discount on Capital Stock = (P100 – P80) x 100 shares
=P 2 000
7. NO PAR VALUE
Stocks are issued without any nominal cost. They are
deemed fully paid and non-assessable
Not available as distribution for dividends
Must have a stated value (not lower that P5 per share)
Paid-in Capital in Excess of Stated Value
If no par value stocks are sold more than its stated
price
8. CLASSIFICATION OF STOCKS
Common Stock
Also known as Risk Stock – first to shoulder losses but
benefits most in case of profits
Granted with exclusive right to vote.
Preferred Stock
It enjoys special privileges/preferences as to dividends and
assets
They are generally denied the right to vote.
a. Preferred as to Dividends
They are given priority in the distribution of declared
dividends
b. Preferred as to Assets
Preferred in the distribution of assets in case of
9. ISSUANCE OF STOCK AT PAR VALUE
JORENS Corporation is authorized to issue
P350 000 capital stock divided into 5 000
shares of common stock with a par value of
P50 per share and 1 000 shares of preferred
stock with a par value of P 100 per share.
Assume, 3 000 and 500 shares of common
and preferred stocks were sold for cash
respectively.
10. JOURNAL ENTRY
Cash (3 000 shares x P50) 150 000
Common Stock 150 000
To record issuance of 3 000 shares at par value
Cash (500 shares x P100) 50 000
Preferred Stock 50 000
To record issuance of 3 000 shares at par value
11. ISSUANCE AT MORE THAN PAR VALUE
Suppose, 1 000 shares of common stock are sold for P75
per share and 100 shares for Preferred stocks are sold at
P110 each.
Cash ( 1000 shares x P75) 75 000
Common Stock (1000 shares x P50 50 000
Premium on Common Stock 25 000
To Record ……..
Cash (100 shares x P110) 11 000
Preferred Stocks ( 100 shares x P100 10 000
Premium on preferred Stock 1 000
To record…….
12. ISSUANCE AT LESS THAN PAR VALUE
Suppose, 1 000 shares of common stock are sold for P40
per share and 100 shares for Preferred stocks are sold at
P80 each.
Cash ( 1000 shares x P40) 40 000
Discount on Common Stock 10 000
Common Stock (1,000 sh x P50 50 000
To Record ……..
Cash (100 shares x P80) 8 000
Discount on Preferred Stocks 2 000
Preferred Stock 10 000
To record…….
13. RECORDING STOCKS SUBSCRIPTION
JORENS Corporation is authorized to issue P350 000
capital stock divided into 5 000 shares of common stock
with a par value of P50 per share and 1 000 shares of
preferred stock with a par value of P 100 per share.
Assume, the corporation receives on September 1, 20xx
stock subscriptions to 2 000 shares of common stock at P70
per share and 500 shares of preferred stock at P108. One
half of the prices are paid as down payment and the balance
shall be paid in equal installments on October 1 and
November 1.
14. RECORDING STOCKS SUBSCRIPTION
September 1, 20xx
Cash (2000 sh x P70 x ½) 70 000
Subscription Receivable - Common 70 000
Subscribed Common Stock
(2000sh x P50) 100 000
Premium on Common Stock
(P70 – P50) x 2 000sh 40 000
To record subscription of 2 000sh at P70/sh
15. RECORDING STOCKS SUBSCRIPTION
September 1, 20xx
Cash (500sh x P108 x ½) 27 000
Subscription Receivable - Preferred 27 000
Subscribed Preferred Stock
(500sh x P100) 50 000
Premium on Preferred Stock
(P108 – P100) x P500 4 000
To record subscription of 500sh at P108/sh
16. RECORDING STOCKS SUBSCRIPTION
October 1, 20xx
Cash (P70 000/2) 35 000
Subscription Receivable - Common 35 000
To record collection
Cash (P27 000/2) 13 500
Subscription Receivable - Preferred 13 500
To record collection
17. RECORDING STOCKS SUBSCRIPTION
November 1, 20xx
Cash (P70 000 – P35 000) 35 000
Subscription Receivable - Common 35 000
To record full payment of stocks subscribed
Subscribed Common Stock 100 000
Common Stock 100 000
To record issuance of 2 000 shares
18. RECORDING STOCKS SUBSCRIPTION
November 1, 20xx
Cash (P27 00 – P13 500) 13 500
Subscription Receivable - Preferred 13 500
To record full payment of stocks subscribed
Subscribed Preferred Stock 50 000
Preferred Stock 50 000
To record issuance of 500 shares
19.
20. Jolly Corporation is authorized to issue 6 000
shares of P30 par value common stock.
Prepare journal entries for the following
transactions:
1.Issued 2 000 shares of common stock at
P30 per share
2.Accepted subscriptions to 1 000 shares of
common stock at P40 per share.
3.Received full payment on the subscription
and issued the stock
21. 1. Cash (2000sh x P30) 60 000
Common Stock 60 000
To record ….
2. Cash (1000sh x P40) 40 000
Subscription Receivable 10 000
Subscription Common Stock 40 000
Premium on Common Stock
(P40 – P30) x 1000sh 10 000
22. 3. Cash 10 000
Subscription Receivable 10 000
To record collection
Subscribed Common Stock 40 000
Common Stock 40 000
To record issuance of 1000sh common stock
