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If I remember correctly from my early accounting classes Additional Paid in Capital is the difference between the common stock par value and money actually received by the company for the original purchase of a single share.

Take Coke for example. I reviewed their 2003 Balance Sheet and received the following information:

Par Value Common Stock $.25

Shares Authorized (current maximum number of shares authorized for sale) 5,600,000,000,

Shares Issued 3,494,799,258,

That is why if you look at Par Value Common Stock on the 2003 Coke Balance Sheet you see the figure $874(000,000 is assumed) beacuse 3,494,799,258 Common Shares originally issued at $.25 Par Value equals $873,699,815, rounded up equals $874,000,000.

Treasury Stock shares (outstanding shares Coke purchased back from previously outstanding shares issued above) I didn't write down this number,

Therefore, outstanding shares are the difference between shares issued - treasury stock shares.

In it's most basic form this is how Coke would record the purchase of one share of stock for $50 on their books.

Debit Cash $50.00
Credit Common Stock ($.25 Par Value) ($ .25)
Credit Additional Paid in Capital ($49.75)

Subsequent sales of this single share on the open market do not cause any additional journal entries to be recorded on Cokes books unless say this share is later sold back to Coke in a buy back offer for say $42. The most basic entry on Cokes books would then be:

Debit Treasury Stock $42.00
Credit Cash ($42.00)

I hope this helps answer your question


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