acc chapter 11

partnership agreement

specifies how much the owners will invest, what their salaries will be, and how profits will be shared

treasury stock

stock issued by the firm and then repurchased but not retired. it is a contra equity account, not an asset.

common stock increased $5,000; additional paid in capital- common increases $145,000

valor company issued 5,000 shares of $1 common stock for $30 per share, providing the company with $150,000 in cash. what effect, in addition to the increase in cash, does this transaction have on the accounting equation for valor?

payment date

when cash dividends are paid out on a later date it is referred to as the _____.

retirement of stock

when the stock is repurchased with no intention of reissuing at a later date

additional paid in capital is credited

when treasury stock is resold at a price higher than its cost

the dividends are paid on preferred stock before they are paid on common stock

stockholders prefer to invest in preferred stock because

additional paid in capital

the amount received for the issuance of stock in excess of the par value of the stock

contributed capital

the amount the corporation received from the sale of stock to the stockholders

dividend payout ratio

the annual dividend amount divided by the annual net income

stock split

the creation of additional shares of stock with a reduction of the par value of the stock

date of record

the dividend is paid to the stockholders who own the stock as of a particular date, the ______.

stock dividend

the issuance of additional shares of stock to existing stockholders

authorized shares

the maximum number of shares a corporation may issue as indicated in the corporate charter

outstanding shares

the number of shares issued less the number of shares held as treasury stock

issued shares

the number of shares sold or distributed to stockholders

cumulative feature

the right to dividends in arrears before the current year dividend is distributed

market value per share

the selling price of the stock as indicated by the most recent transactions

comprehensive income

the total change in net assets from all sources except investments by or distributions to the owners

contributed capital + retained earnings

total stockholders equity

book value per share

total stockholders equity divided by the number of shares of common stock outstanding

never

income statements are _____ involved in treasury stock transactions

disadvantages of financing with stock

1. control- issuing stock involves giving voting rights to new investors, resulting in less control of the company for existing stockholders. (a disadvantage for issuing company) 2. tax consequences- interest on debt is tax- deductible for the issuing company, dividends on stock are not. (a disadvantage for issuing company) 3. impact on ratios- issuing stock decreases several important financial ratios, including earnings per share. (a disadvantage for issuing company)

advantages of financing with stock

1. flexibility- dividends on stock can be increased in profitable years and reduced when the company is less profitable. debt interest is fixed. (advantage for issuing company) 2. exchanges facilitate trading- large companies have ready markets for stock through the stock exchanges. (an advantage for issuing company and investors) 3. return on investment- stock generally provides a higher return in dividends and in growth than interest on debt (an advantage for investors)

to be treated as treasury stock

1. it must be the corporations own stock 2. it must have been issued to the stockholders at some point 3. it must have been repurchased from the stockholders 4. it must not be retired, but must be held for some purpose. treasury stock is not considered outstanding stock and does not have voting rights

partnership

a business owned by two or more individuals that has the characteristic of unlimited liability

sole proprietorship

a business with a single owner

substance over form

a company must look not only at the legal form but also at the economic substance of the security to decide whether it is debt or equity

does not change total assets, liabilities, or total stockholders equity

a stock split

convertible feature

allows preferred stock to be exchanged for common stock

participating feature

allows preferred stockholders to share on a percentage basis in the distribution of an abnormally large dividend

redeemable feature

allows stockholders to sell stock back to the company

callable feature

allows the firm to eliminate a class of stock by paying the stockholders a specified amount

par value

an arbitrary amount that represents the legal capital of the firm

treasury stock / treasury common shares

avg. cost per treasury stock

date of declaration

cash dividends are declared on one date

3,000

dali company has 15,000 shares of stock authorized at jan 1. dali issues 4,500 shares to the stockholders during the year and then the company repurchases 1,500 shares as treasury stock. based on this information, how many shares are outstanding at dec 31?

net income/ shares outstanding

earnings per share

a decrease in the stockholders equity

how is treasury stock shown on the balance sheet?

retained earnings

net income that has been made by the corporation but not paid out as dividends. it represents an important link between the income statement and the balance sheet

$140,000

on jan 1, 2015 bogart âcres company issued 10,000 shares of 10%, $20 par value cumulative preferred stock. in 2015 + 2016, no dividends were declared on preferred stock. in 2017, bogart had a profitable year and decided to pay dividends to stockholders of both preferred and common stock. if they have $200,000 available for dividends in 2017, how much could it pay to the common stockholders?

common stock issued - treasury shares

outstanding common stock

shares of common stock * value per share + shares of common stock * value per share

paid in capital

stock price/ earnings per share

price earnings ratio

total paid in capital - common stock * price per share / preferred stock

price per share preferred shares issued

articulated statements

refers to the fact that the information on the income statement is related to the information on the balance sheet. the bridge (or link) between the two statements is the retained earnings account.

statement of stockholders equity

reflects the differences between beginning and ending balances for all accounts in the stockholders equity category of the balance sheet

net income - dividends

retained earnings

net income/ stockholders equity / 2

return on equity

net income/ shares outstanding * stock price

return on the market value of equity

shares issued + shares unissued

shares authorized

shares outstanding + treasury stock

shares issued

number issued - treasury stock

shares outstanding