Accounting 2 – ACCT 122 – Program #204 – Corporations

Here we are, thanks for coming back. I hope
everyone is doing well. How was the homework? Not too bad? Let's dive right into it because
there are some other things I want to talk about today. Actually the lecture we did before
this one said partnerships conclusion, this one probably is the partnerships conclusion
because we still have to go over the chapter 12 homework. Once we go over the chapter 12
homework we're done except for the chapter 12 Connect assignment. After this class period
I will put out there and you can do it. I will talk to you guys off camera so it doesn't
mess up the online folks. For you online folks, always be checking the calendar on the D2L
website for due dates on tests and the Connect assignment. Let's go ahead and dive into the
homework. I think 12.5 was the first one. Is that correct?
So let's go right to that. Alright 12.5, Kramer and Knox began a partnership by investing
\$60,000 and \$80,000, respectively. During its first year the partnership earned \$160,000.
Prepare calculations showing how the \$160,000 income should be allocated to the partners
under each of the following three separate plans for sharing income and loss; okay first
of all what if the partners fail to agree on a method.

How will we then do it? We will
do it equally right? So how much was the net income? \$160,000. So that would be equal right?
So \$80,000 each is that correct? Alright number 2 what is partners agreed to
share income and loss in proportion to their initial investments, round amounts to the
nearest dollar? Okay well we did a little allocation here. They write it out a little
differently than I would have, but they recognize that Kramer had capital of \$60,000 and Knox
had capital of \$80,000 for a total of \$140,000. Okay for Kramer you take \$60,000 and divide
it by \$140,000 times that net income of \$160,000 and you get \$68,571; if you're within a dollar
or two that's fine.

Then you do the same thing for Knox. You take \$80,000 and divide it by
\$140,000 and times it by the net income and you get \$91,429. Again you can round but you
want to make sure those numbers add up to \$160,000 or your journal entry is not going
to balance when you book it. Student question "online instead of using the full decimal
I used the very first decimals I was like \$150 off. I got 91,200 and \$68,800, we just
rounded the percentage that's what we did". Well try to take it to at least a couple decimal
places, but I would probable give you cleaner numbers. Off by a couple hundred dollars,
if I was a partner I might go a couple hundred dollars is important to me; so take it to
at least a couple decimal places if you can.

Sometimes I think it's easy as opposed to
taking \$60,000 and divide by \$140,000 and taking that number and rounding; take \$60,000
divided by \$140,000 times \$160,000 in your calculator. Just punch it in that way and
again make sure it adds up to the next income. It sounds like you have a general understanding
of how you're doing it. Okay number 3 what if partners agreed to share
income by granting a \$50,000 salary allowance to Kramer and a \$40,000 per year salary allowance
to Knox; 10% interest on their initial investments and the remaining balance shared equally.
Okay we've done these.

We have a net income of \$160,000 we have salary allowance of \$50,000
and \$40,000 respectively for Kramer and Knox, then we have interest allowances of, did you
get \$6,000 and \$8,000 for their interest allowances? Okay what do those four numbers add up to?
\$104,000 is that right? Okay we take that \$104,000 and subtract it form the \$160,000
and we get \$56,000. How do we divide that balance? Evenly, half
of \$56,000 is \$28,000 and we add those three
numbers up and we get \$84,000 and \$76,000. Now here's the key thing. Does that number
plus that number equal the next income of \$160,000? Yes it does. They don't ask for
this but let's go ahead and see what the journal entry would look like to book. It would look
like this. We would debit income summary to close out that net income and credit Kramer
capital for \$84,000 and Knox capital for \$76,000. Okay we're going to go to 12.6 which is kind
of a continuation on of this one. The only thing they are going to do is change the net
income amount.

So let's go ahead and take a look at that. I'm just going to put the
whole solution up there for part one. Part one the net income is now \$98,800. Everything
in this circle stays the same. That still equals \$104,000. \$98,800 minus \$104,000 equals
negative \$5,200. What's half of negative \$5,200? You get negative \$2,600. Add those three numbers
up and you get \$53,400 and \$45,400. Does that plus that equal that? Yes it does. They didn't
ask you for it but the journal entry would be this one right here. Where we would debit
income summary for \$98,800 and credit there two capital accounts for the amounts we got
from the analysis. Alright let's do the last one. The last one
says we have a net loss of \$16,800. Now I think is kind of more beneficial to think
of it as a negative net income.

Let's take a look. We should probably put those titles
up there again. That's Kramer this is Knox. We have a net income of negative \$16,800.
Everything in the circle still stays the same. That still adds up to \$104,000. \$16,800 to
the negative minus \$104,000 equals \$120,800 to the negative. What's half of that? That
is \$60,400 to the negative. Add those three numbers up and that's what you get. You actually
get negative \$4,400 for Kramer and negative \$12,400 for Knox.
Student "is it alright that we switched the interest allowances, like I had Kramer having
an \$8,000 interest allowance for every problem I did that".

Well that's not right. Because
Kramer gets, that's not 10% of his capital balance is it. Student "well it doesn't say
which one, in the problem it just says one puts in this much and one puts in this much.
It doesn't say which one puts in which." That's a good question. What they say is Kramer and
Knox began a partnership by investing \$60,000 and \$80,000 respectively. Respectively means
in that order, Kramer and Knox; \$60,000 for Kramer and \$80,000 for Knox. Does that make
since? They do that a lot that word respectively means in that order that we just said. Good
question. Ok here's a good question. How would the journal entry look to book this situation
down here? Student answer "credit income summary". You would actually have to; here we are actually
going to decrease the capital balances of those partners, correct? We know that capital
is a credit balance account, which means you increase it with a credit and decrease it
with a debit.

Since those amounts up here are a negative here would be the journal entry
to book that. We would debit capital Kramer for \$4,400, debit capital Knox for \$12,400
and credit income summary. There is never a negative sign in the journal entry. Don't
ever put a negative sign. Are there any questions on that folks? If not let's take a look at
12.9. The partners in the Biz partnership have agreed
that Mandy can sell her \$100,000 equity in the partnership to Brittany. For which Brittany
will pay Mandy \$85,000. Present the partners journal entry to record this sale of Mandy's
interest to Brittany on September 30th.

Alright we can do that. This is that kind of simple
situation when the exchange of cash actually occurs outside of the partnership business
entity. So we do not have the number \$85,000 anywhere in our record, the cash that was
exchanged. What we simply do looking at this journal entry; we are decreasing capital for
Mandy by \$100,000 and increasing capital for Brittany by that \$100,000. Alright questions
on that one folks? Alright then let's go ahead; we have 12.7
what I wanted to do; I'm looking in all my piles up here for my work. We need to go over
the, didn't we have a bonus question that we had not yet covered? So let's go over that
one.

Go ahead and get that work out and let me see if I can find where I put it. Here
it is. You guys can quit looking I found it. What we had here, let's refresh out memory
a little bit. This is the admission of new partner handout. But what we had up here in
part B was prepare the journal to record the journal entry for the admission of Leto which
is the new partner assuming he invested cash of \$90,000 into the partnership. What we did
was looking at the information at the top of example two we recognized the equity before
the new partner came on board it was a total of \$200,000. This is all stuff we did last
time, not to the bonus question yet. The cash invested by the new partner is going to be
\$90,000. That will give a total equity of \$290,000. Because of that cash infusion an
addition in assets is going to increase total equity. What's the partnership interest that
they're going to give Leto? 30%. What's 30% of \$290,000? That's \$87,000. So the way we
did this journal entry up here in part B is we debited cash for \$90,000 and we credited
capital for Leto for \$87,000.

That was the first thing we did. That journal entry didn't
balance. The credit needed a total of \$3,000 to make that JE balance. Well in part B before
we got to the bonus question they share that equally. So we credited capital for Hulce
for \$1,500 and we credited Morris by \$1,500. Okay know in the bonus question everything
is the same except that bonus attributed or paid to the old partners is not shared equally,
but rather in a ratio of 20% to Hulce and 80% to Morris. So this analysis still holds
\$200,000 equity before the new partner, cash invested by Leto of \$90,000 that will give
us total equity of \$290,000. Leto is still having a percent ownership of 30% thus Leto's
capital balance will be credited for \$87,000. So let's go ahead and do this journal entry.
How much is cash going to be debited for? \$90,000. How much is capital for the new partner
Lato going to be credited for? \$87,000. Does that JE balance? It does not balance does
it? It needs \$3,000 on the credit side to balance. So we are going to divide that up,
capital Hulce, capital Morris, but were not going to divide it up equally.

We are going
to divide it up 20%, 80% for Hulce and Morris respectively. What's 20% of \$3,000? \$600.
What's 80% of \$3,000? \$2,400. Are there any questions on that? We kind of go through the
same methodology though right? Okay know let's do 12.7. The Struter partnership
has a total partners' equity of \$510,000, which is made up of Main, Capital, \$400,000,
and Frist, Capital, \$110,000. The partners share net income and loss in a ratio of 80%
to Main and 20% to Frist. This is very similar to the bonus question isn't it? On November
1, Madison is admitted to the partnership and given a 15% interest in the equity and
a 15% share in any income and loss.

under each of the following separate assumptions: Madison incest cast of \$90,000.
Let's go ahead and do this. Alright, what is the total equity before the new partner?
\$510,000. In the first situation we have cash invested of \$90,000 so the
total equity after that will be \$600,000 and
then what is the percent owners hit they're going to give? The new partner Madison interest
will be 15%. What's 15% of \$600,000? \$90,000, you're correct. How do we go about doing this,
let's take a look? Alright, in this case looking back at this, cash invested is \$90,000 and
let me go ahead and label this, the capital balance of Madison the new partner will be
\$90,000. So the journal entry that we have is
going to be this right here. We debit cash
for \$90,000 and credit Madison capital for \$90,000. Do you agree? That one's pretty easy.
Let's go to the next one. What is the cash invested is not \$90,000 but is rather \$120,000.
Well, in that case the total equity is still \$510,000 but now the cash is \$120,000. This
total equity will then be \$630,000. What's the new partnership interest? It's still 15%.
What's 15% of \$630,000? \$94,500.

So now we know what we have to do, right? We have to
debit cash for \$120,000; credit capital for Madison for the \$94,500; that doesn't equal
does it? How much help does the credit side need? \$25,500. We don't divide that equally
though do we? We divide it 20/80. Okay so did you get a credit to capital Main for 20,400
and a capital for Frist for \$5,100? Okay that's just 80% and 20% of the amount needed to balance
that journal entry. Alright let's look at the last example. What
if the cash invested is \$80,000? Okay let's take a look. If the cash invested is \$80,000
then the total equity is going to be \$590,000. What's the new partnership interest going
to be? It's still 15%. What is 15% of \$590,000? \$88,500. Well we know what we have to do.
We have to credit the credit the capital balance for \$88,500 and we have to debit cash for
\$80,000.

So once we do that, try to just concentrate on the part of the journal entry. We credit
Madison capital for \$88,500; we debit cash for \$80,000. That doesn't balance does it?
The difference is what? The difference is \$8,500 which we are going to divide up 80%,
20% for Main and Frist respectively. It's pretty much the same process as that bonus
question. Let's take a look at these journal entries again. This was a situation were in
essence the old partners received a bonus because their capital accounts were increasing.
This is a situation we're in essence the new partner was receiving a bonus because the
capital balances of the old partners was being debited or decreased.

Okay, very nice. That's
it for the homework isn't it? Do you care if we dismiss class a little early?
We're not going to dismiss class I'm just kidding. I wouldn't do that to you, you guys
paid for this right. Okay were going to switch gears now. We are officially done with chapter
12. I will tell you all what your Connect assignment is after the cameras stop rolling.
Remind me to do that. You folks online taking it at home take a look at your calendar on
D2L. We talked about sole proprietorships in Accounting
I. Chapter 12 that we just completed we talked about partnerships. So what do you think we're
going to talk about in chapter 13? Corporations, you are correct. Corporations alright, let's

Now I want you to understand everything we do in this chapter;
there is a lot of legal stuff in regards to corporations. We're not lawyers, I'm not a
lawyer. We are learning what we need to know as accountants in regards to accounting for
corporations. This isn't a law class on all the specific little things you need to do
and the limits on what you need to file and when. We're talking about accounting for corporations.
A corporation is an entity created by law. It is a separate legal entity. It is like
an artificial person. Its existence is separate from the owners and it has certain rights
and privileges. It can sue and it can be sued. It is like an artificial person a legal entity.
Now the ownership can be privately held or publicly held. Let's come off of this for
a moment. First of all whenever I say the word corporation what probably comes to mind
is a huge company like Pepsi Co. or Garmin or Sprint. Please understand that the two

What it means by corporation is not that there
are a lot of people. It just means you have gone through the legal process of setting
up your business as a separate legal entity. There are many more corporations of just a
few people than the huge ones. So keep that in mind even though we might have a tendency
in this chapter to think about large corporations in the examples and stuff we use. Okay back
to the slides. The ownership can be privately held. What does that mean by privately held?
That means the owners have incorporated, they each have some shares of stock, but you cannot
go purchase the stock unless they let you. You can't go to the New York stock exchange
or the NASDAQ and buy that stock. That would be similar if you guys incorporated and you
were privately held. We can't buy stock in them okay.

Daniel has stock and Michael has
stock. That's a privately held corporation. Now there's a very, very large privately held
corporation here in Kansas City. Do you know what that is? It is Hallmark. You can't go
buy stock in Hallmark. The Hallmark stock is owned by the Hall family and there's probably
some other big wigs that have some too, but you can't go buy some that's a privately held
corporation. The largest privately held corporation in the world I believe is in Kansas. Do you
know who that is? The largest privately held corporation is in Kansas down in Wichita where
I'm from. Koch industries. Not Coca-Cola. Have you ever heard of Koch, the Koch brothers?
Yes their down there. No comments they could be watching. So that is a privately held corporation.
What is a publicly held corporation? A publicly held corporation is what we're more used to.
Like Sprint, Garmin, Pepsi Co, IBM, Apple.

You can go buy stock in that company and thus
become a shareholder or owner of that company. Does anyone own stock for a company? Not a
mutual fund but you actually own stock for a company. Student "My step mom has some stock
in Cerner. She has stock in Cerner? I used to have stock in Pepsi co. Now if you wanted
Henry if you wanted you could be an owner of Cerner or Pepsi co. by the end of the day
if you wanted to. You could just go buy stock. So when we say a publicly held corporation.
The example is like Apple, you could go be an owner of Apple by the end of the day if
you wanted. We are going to mainly focus on publicly held corporations in our discussion.
So I want you to think of perhaps me and my Pepsi co stock. What are the advantages of
incorporating your business? While you are a separate legal entity and thus you have
limited legal liability. Your owners can not be sued and have their personal assets taken.
There's that liability that you want to be limited.

That's different from a partnership
that had unlimited liability and that really was a bummer right. Corporations have limited
liability. They also have transferable ownership rights. If I want to sell my Pepsi co. stock
I can do that. Henry if you want to go buy some Pepsi co. stock you can do that. You
don't have to get special permission or anything. Corporations have a continues life. What does
that mean? Well if I'm a shareholder or stock owner of Pepsi Co and I die, do you think
Pepsi co. is going to keep going on? Yes, they probably won't even send flowers to my
funeral, will they? Pepsi co. will probably be around longer then I will. Do you agree
with that? It's sad though isn't it? But corporations have a continues life.

Know there is a lack
of mutual agency for stockholders. I'm going to come off the slides. What does a lack of
mutual agency mean? Well let's say I own Pepsi Co. stock, I am an owner of Pepsi Co. One
of many but I am an owner right. Well I can't go conduct business for Pepsi co. I can't
go to Best Buy and say hey, just put this all on Pepsi Co.'s tab I'm an owner it's okay
or I can't go down to the Pepsi Co. headquarters and just walk around and hey you guys working
on? Is this the new Pepsi? That's cool and refreshing. They're going to go who are you
and I will say hey I'm Dave Krug and I'm an owner I'm a stockholder.

No, I am a stockholder
and owner but I don't deal in the operations of the business. I can't go conduct business,
I can't ask for the trade secrets and all that, and believe me I tried okay so you can't
do it. Ease of capital accumulation. What do I mean
by that? Let's contrast that with the Daniel and Michael partnership. Let's say you guys
are a partnership and you want to raise a million dollars. That's going to be pretty
hard if you want to stay as a partnership right, unless one of you has a rich grandmother.
Okay the ways you raise a lot of capital is basically go public and have an initial public
offering and you sell stock and raise millions and millions of dollars. You know some companies
that have recently done this in the last few years.

Who are those? Facebook went public,
not too long ago in the somewhat recent Google did this. Years and years ago Apple did this.
I wish when I was a little boy instead of riding my bike around the neighborhood I would
have bought Apple stock. But they went public. Okay so you have that way to accumulate large
amounts of capital. Know granted your corporation has to be something peoples what to buy. Student
"well so you haven't always been about to buy Apple stock"? Well right when they very
first start of the company usually what they do is just like Facebook they get the company
going and to be an attractive product and then they finally say were ready to have an
initial public offering and everyone's wanting to buy it.

Facebook was around for a while
before they went public. So the money they were using was probably private invested funds
or something like that. Okay. So make sense? What are some disadvantages of being a corporation?
You have a lot of government regulations. Lots of forms to fill out rules and regulations
got some fees you have to pay and also the big one that's a huge disadvantage is the
corporate taxation, the double taxation.

Remember how Pepsi Co. has to pay taxes, right to the
government. They pay taxes to the government and know they have less money than they did
before and they pay me a dividend as a shareholder. Do I have to pay taxes as a shareholder on
the dividend? Yes, so as an owner my money has really been taxed twice.
Alright corporate organization chart; I want you to understand that the stockholders have
the ultimate control. They can vote, they usually meat once a year. If I wanted to I
could go to the Pepsi Co. annual meeting and vote. The stockholders elect and board of
directors and they are the ones that have the overall responsibility of managing the
company. They hire the president and all the people under them. But please know that the
stockholders are in ultimate control. Of course with Pepsi Co.; I'm only one of many, many
stare holders. So it's not just me but the stockholders as a whole are at the very top.
What are the rights of a common stockholder? Let's say I own stock in Pepsi Co.

I have
the right to vote at a stockholder meeting. I can sell my stock; I don't have to ask for
permission. I can also purchase additional shares of stock. We're going to talk about
what is called the pre-emptive right of a shareholder. Let me give a real quick example
of that, what a pre-emptive right of a shareholder is. Henry, let's say you own 1,000 shares
of a company and that company has a total of 100,000 shares of stock. You own 1% of
that stock because you have 1% of the total shares. If that company decides to issue let's
say 30,000 more additional shares. You have the pre-emptive right of first refusal to
buy 1% of those shares if you want. If you do that then you can maintain
your percentage ownership. So if you own 1%
of the company and they issue additional shares, you have first right of refusal, the pre-emptive
right to purchase that.

What that does is prevent companies from just selling a bunch
more stock to water down your percentage if they don't like you. The other rights of a
common shareholder, they can elect to receive dividends, if the company elects to pay. A
company does not have to pay dividends but if they do you have the right to receive those.
The right that you hope you never have to enjoy is if a company liquidates after they
pay their creditors you can go try and get some of those assets.

Good luck with that
ok, but you do have that right. Stock certificates, each unit of ownership you have a share of
stock. It's kind of like a nice fancy certificate that serves as proof that you have those shares.
Have you guys ever looked at the title of your car? It kind of looks like that doesn't
it, just a little title. Kind of think of the title of your car as we have this discussion.
But that's proof that you own the car. Now look what it says on the slide here. When
the stock is sold, the stockholder signs a transfer agreement on the back of the stock
certificate.

That's kind of similar with your car title isn't it? Have you ever bought a
used car and you looked at the back of your little car title and there are some transfers
there? Usually endorsed or validated by whatever they call a notary or whatever. Some people
own stock and say I'm getting worried I've never seen my certificate. Those are somewhere
I guarantee you, maybe your broker has them or someone is holding those for you in your
name.

Now let's talk about some of the basic of common stalk. Okay this is a partial stockholders
equity section of a balance sheet. What this is saying is this is the common stalk of a
company. We will talk about the par value here in a minute. It says they have been authorized
to sell 250,000 shares. That's what the corporation's charter that was voted on gives them the permission,
the authority to sell. They can sell 250,000 shares of stock. Now they've only issued or
sold 192,500 shares in 2016. Back in 2015 they only sold 111,000 shares. Student "so
this isn't communicative, they released those different numbers in different years"? That's
a great question let's look at this. Student "when you add them up you have of \$300,000
in stock".

That's a great question let's answer that. Let's go back to 2015, they had 111,000
shares issued. Let's go to the next slide actually. Authorized is what they have permission
to sell, issued is the amount that's actually been sold. So know lets answer your question.
In 20015 they had 111,000 shares issued which is where we get this 111,000. In 2016 they
issued an additional 81,500 shares. They issued or sold another 81,500 shares. Now at the
end of 2016 they have 192,500 shares.

That was a very good question. There is another
term called outstanding which means the total number of shares that are held by the shareholders.
Here it just says they issued. In this example the number of shares outstanding is also 192,500
for 2016. Now let's talk about some things that seem kind of arbitrary. You just kind
of have to go with me on this, realizing that when we do some examples it's going to make
more sense. Stock first of all has a market price or what we call a market value. This
is the amount that a stock will sell for on the market. This changes not only every day
but every hour if not every minute. You hear about the stock prices go up and down for
certain companies. That's the market price, it changes all the time. It's determined by
the forces of supply and demand. Now there's also something called the par value assigned
to a stock and written on the stock certificate. This is a total arbitrary amount. Now there
is some legal angling in regards to this number, I don't even know all the implications of
it.

I'm going to talk to you about how we use the par value of a stock. Hang with me
if it seems a little fuzzy. We're going to talk about issuing or selling common stock.
Let's talk about issuing par value stalk looking at the slides. Let's first talk about issuing
par value stalk. Let's say remember we are looking from the perspective of the company
or corporation that is selling or issuing the stock. We are not looking at the perspective
of the person buying the stock. So we are Matrix in this example. On September
1, Matrix Inc.

Issued 100,000 shares of \$2 par value stock and they sold it for \$25 per
share. Let's record this transaction. I think it's just easier to just look at the journal
entry and let me explain it to you. How much cash came into Matrix? Well we sold 100,000
shares and we sold it for \$25 per share. So \$2,500,000 came in, so we debit cash for \$2,500,000.
We credit common stock; this is an equity account with a credit balance. We credit common
stock for \$200,000 which listed is 100,000 shares time the par value.

The remainder goes
into this account called additional paid-in capital. Now additional paid-in capital just
like common stock is also an equity account. It also has a credit balance and it also goes
on the balance sheet. As a matter of fact after we make this journal entry let's look
to see what this balance sheet looks like at least partially.
This is the stockholders equity section. It's going to say common stock and usually gives
some details on that.

That equals \$200,000 and additional paid in capital is \$2,300,000.
Let's just concentrate on those two accounts in red right now. Now let me go back here
and let's say everything is the same except the par value is not \$2, let's say its \$1.
Everything else is the same. This time they issued 100,000 shares of \$1 value stock for
\$25 per share. Well we would still debit cash for \$2,500,000 but now we would credit common
stock for \$100,000 and the remainder of \$2,400,000 would go to this additional paid-in capital.
So for our purposes as accountants the only thing that par value really does is determine
how much is credited to common stock verses the additional paid in capital account. Student
"Do you always want to label how much the par value is in the journal entry"? Well you
know in your homework and stuff you don't really have to but you will see in real life
they usually do. Now do you see this and of course this would change to if the par value
was only \$1.

This would be \$100,000 and this would be \$2,400,000 if the par value was \$1.
See this guy right here on the balance sheet? This retained earnings. Retained earnings
is \$650,000. Retained earnings are the account that nobody can ever seem to remember what
the heck it ever is. So on your next slide I want you to put a big star by it. That next
slide should look like this. What is retained earnings? What is this? I'm going to say all
of this, but in two weeks someone's going to say what is retained earnings? So really
put a star by this and learn it.

Listen to me folks. Remember the capital account in
sole proprietorships? Remember the capital account in partnerships. Retained earnings
is a lot like the capital account except for corporations we call it retained earnings.
It has a credit balance, it's an equity account, it keeps track of the cumulative profits that
are retained, it increases with net income and decreases with net loss just like the
capital account right, it decreases with payments of dividends or owner distributions. Remember
how the capital account goes down with withdraws in a sole proprietorship. Well it's the same
way retained earnings go down with owner withdraws. But a lot of time we don't call them owner
withdraws in a corporation. What do we call it when the company distributes cash to the
owner's? Dividends. So looking at the slide retained earnings is decreased by payments
of dividends/owner withdraws. Do you see how it's extremely similar to the capital account?
Okay you can also issue/sell stock at time but you don't receive cash.

asset. For example you receive land. Let's look at an example of this. It's pretty
similar. Let's say September 1 Matrix Inc. issued 100,000 of \$20 par value stock for
land valued at \$2,500,000. Maybe there's a situation where there's a farmer south of
the headquarters and they want that land. So they approach this farmer and say hey we
would like to purchase this land from you and the farmer say I tell you what. Let's
work out an arrangement. I'll give you the land but you need to give me some stock. Well
let's look at it from the perspective of Matrix Inc. In that case everything looks the same
except we don't debit cash we debit a different asset, land.

Student "is it always going to
be an asset"? For you purposes at this point yes. Where you are in your education I'm going
to say yes. By the way, you might want to write this down, it's not in your slides.
There are account that are titled additional paid-in capital, I often abbreviate it APIC.
Well there's another account called contributed capital in-excess-of-pa (CCIEP) or sometimes
they call it Paid-in capital (PIC).

These are all just different names for the same
account. It's basically after you credit the common stock for the number of shares sold
times the par value; then you put the rest of the amount into one of these accounts.
I have an intendance to favor this account right here. The account called additional
paid-in capital because I think it's the most descriptive and I usually use the abbreviation
APIC. You're welcome to use that as well. At other times in your book or in real life
you might see these other account. Please just know they are the something. Alright
we're almost done but lastly. Let's talk about no par value stock. No-par value is stock
that does not have a par value attached to it. For example; on April 1, Leonard, Inc.
issued 50,000 shares of no-par stock for cash of \$450,000, in other words the market value
was \$9/share. How do we record that? We debit cash for \$450,000 and credit common stock,
no-par value for \$450,000. It's just that easy because that no-par value stock.

Enough
talking, let me just give you your homework assignments. What I want you to do for your
homework is
paid a lot of money for it I would go ahead and read it if you have it. Sometimes hearing
it from a different perspective is good. If you're ever have trouble with any of this
stuff, sometimes re-watching a lecture makes a big difference.

But what I want you to do
for homework is, I want you to do this stock issuance hand out. I also want you to do the
following; quick study 13.1 and exercise 13.1 let me see there is one more here just a second.
I also want you to do quick study 13.2 quick study 13.3. Ok so let's take a look at the
screen and I will let you go. I want you to do quick study 13.1, 13.2, 13.3, and exercise
13.1 and also stock issuance handout. Have a great day and we shall see you later..