Partnership And Corporation Accounting 2012 By Win Ballada Chapter 6 Answer Key Free Download Zip

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How to Account for Share Capital in a Corporation

Share capital is the amount of money that a corporation receives from its shareholders in exchange for issuing shares of stock. Share capital can be classified into two types: common stock and preferred stock. Common stock represents the basic ownership interest in a corporation, while preferred stock gives the shareholders some priority over common shareholders in terms of dividends and liquidation rights.

To account for share capital, a corporation needs to record the following transactions:

When shares are issued for cash, the corporation debits Cash and credits Share Capital for the amount received.

When shares are issued for non-cash assets or services, the corporation debits the asset or expense account and credits Share Capital for the fair value of the shares issued.

When shares are issued at a premium, meaning above their par value or face value, the corporation debits Cash and credits Share Capital for the par value and Share Premium for the excess amount.

When shares are issued at a discount, meaning below their par value or face value, the corporation debits Cash and Discount on Share Capital and credits Share Capital for the par value. The discount on share capital is a contra-equity account that reduces the total share capital balance.

When shares are repurchased by the corporation, also known as treasury stock, the corporation debits Treasury Stock and credits Cash for the amount paid. Treasury stock is another contra-equity account that reduces the total share capital balance.

When shares are reissued by the corporation, the corporation debits Cash and credits Treasury Stock for the amount received. If the reissue price is different from the repurchase price, the corporation also records a gain or loss on treasury stock transactions.

Share capital is an important component of a corporation's balance sheet and statement of changes in equity. It reflects the amount of equity financing that a corporation has obtained from its shareholders. Share capital can affect the corporation's profitability, liquidity, solvency, and dividend policy.Here are some more paragraphs on share capital accounting:

One of the advantages of share capital is that it does not have to be repaid by the corporation, unlike debt financing. Shareholders are not creditors of the corporation, but owners who share the risks and rewards of the business. Share capital also does not incur interest expense or fixed obligations for the corporation, which can improve its financial leverage and solvency.

However, share capital also has some disadvantages. Shareholders expect to receive dividends from the corporation as a return on their investment, which can reduce the amount of retained earnings available for reinvestment in the business. Share capital also dilutes the ownership and control of the existing shareholders, especially when new shares are issued to outsiders. Share capital can also be more expensive than debt financing in terms of the cost of capital, as shareholders require a higher rate of return than creditors.

Therefore, a corporation needs to balance its share capital and debt financing to optimize its capital structure and maximize its value. A corporation can use various methods to raise share capital, such as public offerings, private placements, rights issues, bonus issues, stock splits, and stock dividends. Each method has its own advantages and disadvantages, and a corporation should consider its objectives, needs, and market conditions before choosing a method. 66dfd1ed39

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