Companies sell stock as an investment in their business. Stockholders pay a certain price for partial ownership in the business, and receive dividends from the business on a regular basis. Companies often sell stock at a higher price than the stock's current value. The difference in price is called the premium on common stock.
Any organizational costs -- the direct costs of establishing a partnership or corporation -- are considered intangible assets. Thus, if a business provides an attorney or other person involved in creating the business with common stock as payment for services, the premium on that stock would be considered an intangible asset. In this scenario, premiums are used to pay for legal or other costs related to establishing the corporation or partnership.
Stock Issue Costs
The costs of issuing stock are always considered intangible assets. Company accountants credit paid-in capital -- the premium on common stock -- against these assets. The accountant usually lists the costs of issuing stock, such as filing costs, as a debit and paid-in capital as a credit. The premium on common stock plus the stock's value should balance out the costs of issuing stock.
If a company buys back its own stock, the shares it buys back are called treasury stock. Accountants do not distinguish between the stock's current value and its premium costs when accounting for treasury stock. Instead, accountants debit the entire cost of the stock from treasury stock and credit it to cash. For example, if a company repurchases 100 shares of stock at a price of $15 per share, the accountant debits $150 from treasury stock and credits $150 to cash, even if the stock is actually worth only $2 a share at the time of this transaction.
Other Intangible Assets
Any asset that is not physical is considered an intangible asset. In addition to premiums on common stock, patents and copyrights, leases and franchises are all intangible assets. Goodwill, or extra profits a business earns during a quarter because of particularly good market conditions such as excessive customer demand, is also considered an intangible asset. Cash is an example of a tangible asset because business owners can physically touch or hold the asset.
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