3RQ - Horngren'S Financial And Managerial Accounting

Question

How does authorized stock differ from ouststanding stock?

Step-by-Step Solution

Answer

The number of stocks that a corpoartion is legally permitted to issue are authorized stocks. Outstanding stocks are the stocks that are alredy been issued.

Step 1: Introduction to the topic

Authorized stocks are the maximum number of shares a publicly-traded company can issue into the market.

For Instance, a company is authorized to issue 5,000 shares. The comapny issues a total of 800      shares, out of which 400 are issues as floating shares to the public, 300 are issued as restricted shares to company insiders, and 100 are kept in the comapany treasury.

Step 2: Authorized stock differ from outstanding stock-

Authorized stock is laid out in its articles of incorporation as the maximum number of share a company is permitted to issue to investors. According to the above instance, 5,000 shares are authorized to stock.

Oustanding stock is the actual shares issued to investors out of the permitted number of authorized shares. According to the example above, (400+300) 700 Shares are considered outstanding shares.