Accounting CH 11 - Textbook

Differentiate preferred stock from common stock.

Preferred stock has contractual provisions that give it priority over common stock in certain areas, Typically, preferred stockholders have a preference to (1) dividends and (2) assets in liquidation. They usually do not have voting rights.

Identify the major characteristics of a corporation.

The major characteristics of a corporation are separate legal existence, limited liability of a stockholders, transferable ownership rights, ability to acquire capital, continuous life, corporation management, government regulations, and additional taxes.

Explain the accounting for treasury stock.

The cost method is generally used in accounting for treasury stock. Under this approach, Treasury Stock is debited at the price paid to reacquire the shares. The same amount is credited to Treasury Stock when the shares are sold. The difference between the sales price and the cost is recorded in stockholders' equity accounts, not in income statement accounts.

Identify the items that are reported in a retained earnings statement.

Each of the individual debits and credits to retained earnings should be reported in the retained earnings statement. Additions consist of net income and prior period adjustments to correct understatements of prior years' net income. Deductions consist of net loss, adjustments to correct overstatements or prior years' net income, cash and stock dividends, and some disposals of treasury stock.

Prepare the entries for cash dividends and stock dividends.

Entries for both cash and stock dividends are required on the declaration date and that patient date, At the Declaration Date, the entries are: Cash dividend: - Debit Cash Dividends - Credit Dividends Payable Small Stock Dividend - Debit Stock Dividends - Credit Paid-In Capital in Excess of Par (or Stated Value) - Credit Common Stock Dividends Distributable On Payment Date, the entries are: Cash and Stock Dividends are Cash Dividends: - Debit Dividends Payable - Credit Cash Small Stock Dividend: - Debit Common Stock Dividends Distributable - Credit Common Stock

Prepare and analyze a comprehensive stockholders' equity section.

In the stockholders' equity section, paid-in capital and retained earnings are reported and specific sources of paid-in capital are identified. Within paid-in capital, two classifications are shown: capital stock and additional paid-in capital. If a corporation has treasury stock, the cost of treasury stock is deducted from total paid-in capital and retained earnings to obtain total stockholders' equity. One measure of profitability is the return on stockholders' equity. It is calculated by dividing net income minus preferred stock dividends by average common stockholders' equity.

Record the issuance of common stock.

When the issuance of common stock for cash is recorded, the par value of the shares is credited to Common Stock. The portion of the proceeds that is above or below par value is recorded in a separate paid-in capital account. When no-par common stock has a stated value, the entries are similar to those for par stock. When no-par stock does not have a stated value, the entire proceeds are credited to Common Stock.