find the

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