Within this section we'll identify the components that comprise the contributed capital part of stockholders' equity.

Contributed Capital
Contributed capital is the total legal capital of the corporation (par value of preferred and common stock) plus the paid-in capital.

  • Par value - This is a value of preferred and common stock that is arbitral (artificial); it is set by management on a per share basis. This artificial value has no relation or impact on the market value of the shares.
  • Legal capital of the corporation - This is par value per share multiplied by the total number of shares issued.
  • Additional paid-in capital (paid-in capital) - This is the difference between the actual value the company sold the shares for and their par value.

Example:
Company XYZ issued 15,000 preferred shares to investors for $300,000.
Company XYZ issued 30,000 common shares to investors for $600,000.
Par value of preferred shares is $7 per share.
Par value of common shares is $15 per share.

Legal capital:
Preferred shares: $105,000(15,000 x $7)

Common shares: $450,000(30,000 x $15)
Legal capital $555,000

Paid-in capital:
Preferred shares: $195,000 ($300,000-$105,000)
Common shares: $150,000 ($600,000-$450,000)
Paid-in capital $345,000

Legal capital + Paid-in capital = Contributed Capital


Look Out!

If issued common shares have no par value, the amount the stock is sold for constitutes common stock. Preferred stock is always sold with a stated par value.



Accounting for Dividends

Related Articles
  1. Investing

    Additional Paid-In Capital

    Additional paid-in capital is an account in the equity section of a balance sheet. It represents the additional amount paid for the company’s shares over the par value of the shares. Additional ...
  2. Markets

    Why Would A Stock Have No Par Value?

    A stock with no par value might trade for thousands of dollars. It just depends on what the market deems it’s worth.
  3. Investing

    Paid-Up Capital

    Paid-Up Capital is listed in the equity section of the balance sheet. It represents the amount of money shareholders have paid into the company by purchasing shares. It’s essentially two accounts, ...
  4. Investing

    What's Share Capital?

    Share capital, also called equity financing, is the total amount of money and property a company has received for selling its shares to shareholders.
  5. Investing

    What is Par Value?

    Par value is a term used for investments that means original value. It’s also called face value or nominal value.
  6. Managing Wealth

    Learn The Lingo Of Private Equity Investing

    Once, only sophisticated investors worried about the private equity industry. But now, mainstream investors are developing an interest as well.
  7. Investing

    What is a Share Premium Account?

    The share premium account is an equity account found on a company’s balance sheet.
  8. ETFs & Mutual Funds

    Learn The Lingo Of Private Equity Investing

    Because of the non-public nature of private equity, it can be difficult to the learn the lingo. We break it down here.
  9. Investing

    How Dividends Affect Stockholders' Equity

    Find out how dividends affect a company's stockholders' equity and how the accounting process changes based on the type of dividend issued.
  10. Markets

    Facebook Stock: Capital Structure Analysis (FB)

    Analyze Facebook's capital structure to identify trends and atypical characteristics. Find out why the company uses equity capital and carries no debt.
Trading Center