Where to find the capital stock
Capital Stock (Common Stock and Preferred Stock)
the stockholders equity section of the
balance sheet is a little tricky for
some people to understand I mean your
get used to seeing things like in the
liability section just accounts payable
you know it's $100 you get salaries
wages payable is $200 and then all
sudden you get to the stockholders
equity section and you see something
like this you see common stock or
preferred stock you see a par value
you're wondering what that is shares
authorized issues outstanding and as
you've got a base basically a bunch of
words and all these things that you know
bate make a little bit more complicated
than than what you see on the right
which is just a number which and you're
wondering maybe how do they get that 200
and what do all these words over here
mean so basically this is the capital
stock section of the balance sheet and
for a lot of firms that you could just
go ahead and call it the common stock
section because some firms don't have
preferred stock or anything like that
but more generally we just refer to it
as capital stock and it's basically how
the firm gets financing when we think of
things like and let's say you hear about
a firm having an IPO or something like
that they're basically raising money for
the firm by issuing shares they're
issuing shares of stock in their firm
and so this is the section where we're
accounting for that and so the firm has
to disclose certain types of things one
of which is the par value another which
is the number of shares that have been
authorized and what does that mean well
the firm has a board of directors and
the Board of Directors votes to say okay
how many shares are we going to
authorize in this in this offering of
stock to the public and in this case
whether it was a hundred thousand so
there are a hundred thousand shares that
the board of directors has authorized
however that's different from the amount
of shares issued in outstanding and and
here's why just because the board said
hey theoretically we can issue up to a
hundred thousand shares
they've only actually issued twenty
thousand now they reserve the right to
issue that additional 80 thousand that
that difference between these two they
can do that down the road but they
haven't done that right now right now
Amana shares issued is been twenty
thousand and in this case actually also
there's 20,000 outstanding and you might
say well why is that different or
potentially different here it's the same
but why could that be different why if
they issued twenty thousand well they're
not just automatically be twenty
thousand shares outstanding and in the
public well that's because the firm can
buy back shares which is called Treasury
stock the firm can go in and actually
have a stock buyback and buy some of
those shares that were issued and and
and just just hold on to them and then
maybe reissue them later or give them
the employees or or a number of things
so in any event the amount of shares
authorized issued and outstanding you
can actually have three different
numbers so basically when we talk about
about the par value what we want to
drill down is focus here in this problem
on this twenty thousand right we're not
concerned with the amount that we're
authorized that that hasn't been issued
they're not outstanding we want to say
okay well this this par value and this
ode now we say okay well what does this
par value even mean well theoretically
in the old days is like kind of a value
that being you get a let's just draw
here you'd have a little certificate of
stock right now it doesn't necessarily
work that way people can buy stock
online and never even have a piece of
paper but you have the certificate of
stock in this company let's say
coca-cola and there would be a value 1
here that par value and theoretically
that value is the amount that you could
go to the company at any time and say
look I have this this par value here and
I demand that amount of money for it for
my stock now realistically stock prices
fluctuate up and down and we have no
idea where the stock price is going to
be six months from your year from now we
don't Cola doesn't know what it's shares
are going to be worth so what they do
nowadays is they just put a par value
that's really really low like in this
case one penny per share and sometimes
they'll be like
1/100 of a penny per share really really
low par value because it doesn't really
matter it's just kind of this archaic
tradition or what have you and so the
par value is is deliberately set really
low and you basically just just in this
case we take that 20000 and multiply it
by the 1 cent a par value per share and
that's going to give us 200 and 200
would what the firm would have under its
common stock and if you think of think
of a journal entry so they're raising
money they would have a credit so they'd
have they'd have a cash amount obviously
they debt their debiting cash for some
amount okay when they get that's the
actual money they get from the people
who buy their stock and then there's
going to be a credit to common stock for
that 200 and then now you might be
wondering okay but the firm is going to
get more than one cent per per share
when they go ahead and actually issue
the stock right maybe they get $35 a
share well in that case that's where
we're going to have this this this to
make this entry here balance right so
let's say that lets say this cash was
800 for example well we've got this 600
here and we're wondering well what is
that well to make that entry balance
we're going to have a thing called
additional paid-in capital
I'll just abbreviate a pick and that's
actually going to make the this entry
balance and that's a pick is going to be
a lot bigger than the common stock
typically on that on that shareholders
equity section of the balance sheet
because again this is deliberately set
low it's just the putt representing the
par value maybe the same as you
preferred stock the exact same way you'd
have a cash than preferred say so so in
any event and that's kind of explains
you'll call the rationale for why we
have this common stock and what it is
and in the next video we're going to go
through an actual example and calculate
how you would go about doing the journal
entry and everything in a case where you
have significant additional paid in
capital and talk about
