Assessments on Capital Stock

An assessment on capital stock can occur anytime the shares are not fully paid for by investors, and the securities contain a provision that allows them to be called in. Typically, this type of stock is associated with the financial and bank industries; and an assessment would be a rare event; typically occurring if the corporation is insolvent or as part of a bankruptcy proceeding. When an assessment occurs, holders of capital stock are required to pay the amount owed or forfeit the right to the shares they own.

When a company receives the assessment paid by shareholders, its accounting department must determine if the original shares were sold at a discount or premium. If the shares were originally sold at a premium, the proceeds from shareholders should be credited to Additional Paid-in Capital. If the shares were originally sold at a discount, the corresponding discount account is credited.