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

    Amazon Stock: Capital Structure Analysis (AMZN)

    Analyze Amazon's capital structure to determine what roles equity and debt play in financing operations. How has Amazon's financial leverage changed over time?
  2. Small Business

    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.
  3. Investing

    Explaining Original Issue Discount

    An original issue discount is the amount below par at which a bond or other debt instrument is issued.
  4. Investing

    Preferred Stocks versus Bonds: How to Choose

    What is the difference between corporate bonds and preferred stock? The following are a list of pros and cons for each investment.
  5. Investing

    Google Stock: Capital Structure Analysis (GOOGL)

    Analyze Alphabet's capital structure to determine how it has changed over time and how it compares to similar companies.
  6. Managing Wealth

    What is Capital Stock?

    Capital stock refers to the number of authorized shares a corporation may issue, both common and preferred.
  7. Investing

    Are Bonds Selling At A Premium A Good Investment?

    A bond with a par value – or face value -- of $1,000 is selling at a premium when its price exceeds par.
  8. Investing

    Twitter Stock: Capital Structure Analysis (TWTR)

    Analyze Twitter's capital structure to understand the importance of equity and debt financing. Identify trends in financial leverage and enterprise value.
  9. Investing

    Balance Sheet: Analyzing Owners' Equity

    Analyzing owners’ equity is an important analytics tool, but it should be done in the context of other tools such as analyzing the assets and liabilities on the balance sheet.
  10. Investing

    Ares Capital (ARCC) to Buy Rival for $3.4 bln (ARCC, ACAS)

    Private equity firm Ares Capital inks deal to acquire smaller rival American Capital for $3.4 bln in stock and cash.
Frequently Asked Questions
  1. What is the difference between yield and return?

    While both terms are often used to describe the performance of an investment, yield and return are not one and the same ...
  2. What are the Differences Among a Real Estate Agent, a broker and a Realtor?

    Learn how agents, realtors, and brokers are often considered the same, but in reality, these real estate positions have different ...
  3. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally ...
  4. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ...
Trading Center