Accounting chapter 11

Partnership

Formed by two or more people reaching a mutual agreement about the terms of the relationship

Declaration date, date of record, date of payment, year end

Four important dates for a cash dividend

Stock options

Give employees the option of acquiring the company's stock at a predetermined price often equal to the then current market price

Price earnings ratio

Current stock price/ earnings per share

Accumulated other comprehensive income

Reports unrealized gains and losses that are temporary changes in the value of certain assets and liabilities that the company holds.

Market value

A small stock dividend is recorded at

They don't expect strong future performance

A low PE performance means

Seasonal new issues

Additional issues of new stock by the company if the company had issued stock previously

Payment date

A cash outflow occurs on which dividend date?

Sufficient cash

A corporation must have this to pay the dividend. If a company has retained earnings it doesn't mean they have this as well.

Payment date

A dividend that distributes additional shares of a corporations own stock

Investors expect the company to improve in the future and increase its profits.

A high PE ratio means

Par value

A large stock dividend is recorded at

Year end date

All temporary accounts including dividends are closed into retained earnings.

Stock split

An increase in the total number of authorized shares by a specified ratio. Does not affect retained earnings

Par value

An insignificant value per share of capital stock specified in the charter. First introduced to prevent stockholders from removing contributed capital of businesses that were about to go bankrupt.

Companies disclose any restrictions in their financial statement notes

Because restrictions on retained earnings can limit the ability to pay dividends accounting rules require that...

Debt financing

Borrowing money from lenders.

No par value stocks

Capital stock that has no par value specified in the corporate charter. It does not have a specified legal value per share. Is a legal concept and is not related to the market value of the company's stock.

Statement of stockholders equity

Contains a column for each stockholders equity account and shows factors that increased and decreased the account balances during the period.

2 for 1

Each issued share is called in and two new shares are issued in its place

Primary advantages of a partnership

Ease of information. Complete control by the partners. Lack of income taxes

Preferred stock allows different voting rights. Dividends may be paid at a fixed rate. Carries priority over common stock.

How does preferred stock differ from common stock?

Earnings per share

How much profit is earned for each share of common stock outstanding

Dividends can never be in arrears

If preferred stock is noncumulative,

Treasury stock

Issued shares that have been reacquired by the company

Equity financing

Issuing new stock to investors. Does not have to be repaid but interest must be paid on debt

Return on equity

Net income- preferred dividends/ average common stockholders equity

Earnings per share

Net income- preferred dividends/ average number of common shares outstanding

Declaration date

On which date is a liability credited?

Drawing account

Record the owners withdrawals of cash or other assets from the business

Return on equity

Reports a company's return to common stockholders

Treasury stock

Reports shares that were previously issued to and owned by stockholders but have been reacquired and at now held by the corporation.

Issued shares

Shares of stock that have been distributed by the corporation

Outstanding shares

Shares that are currently held by stockholders

Current dividend preference

Sharesxparvaluexdividend

Dividends in arrears

Sharesxparvaluexdividendx2years

Transferring an amount from retained earnings to common stock

Stock dividends are recorded by

Transferring an amount from retained earnings to contributed capital amounts.

Stock dividends are recorded by

Preferred stock

Stock that has specified rights over common stock

Income investment

Stocks that consistently pay dividends

Growth investments

Stocks that pay little or no dividends

Contributed capital

The amount of capital the company received from investors contributions in exchange for the company's common stock and preference stock

Charter

The articles of incorporation that spells out information about the corporation such as its name adress nature of business and ownership Structure.

Common stock

The basic voting stock issued by a corporation to stockholders

Retained earnings

The company's total earnings that have been retained in the business. The amount of equity that the company itself has generated for stockholders but not distributed to them.

Retained earnings

The cumulative amount of net income earned by the company less the cumulative amount of dividends since the corporation was first organized. Also represents earned capital

Dividends in arrears

The cumulative unpaid amount that must be paid before any future common dividends can be paid.

Declaration date

The date on which the board of directors officially approves a dividend.dividends are not an expense

Record date

The date on which the corporation prepares the list of current stockholders shown on its records. Dividends can be paid only to the stockholders who own stock on that date.

Additional paid in capital

The decrease in retained earnings is greater than the increase in common stock so the excess market value over par value is

Current dividend preference

The feature of preferred stock that grants priority on preferred dividends over common dividends

Initial public offering

The first issuance of a company's stock to the public.

Authorized shares

The maximum number of shares of capital stock of a corporation that can be issued as specified in the charter.

Cumulative dividend preference

The preferred stock feature that requires current dividends not paid in full to accumulate for every year in which they are not paid. These unpaid amounts also known as dividends in arrears must be paid before any common dividends can be paid.

Stock splits

The total number of authorized shares is increased by a specific amount . Revising the corporate charter to reduce the per share par value of all authorized shares.

Current and cumulative

The two most common dividend preferences are

Price earnings ratio

To determine the value investors place on a company's common stock. Measures how many time more than current years earnings investors are willing to pay for s company's stock.

Capital account

To record capital contributions and accumulate periodic income or loss

Repurchase of stock

To send a signal to investors that the company itself believes its own stock is worth securing. To obtain shares that can be reissued as payment for purchases of other companies, to obtain shares to reissue to employees as part of employee stock purchase plans. And reduce the number of outstanding share to increase per share measures of earnings and stock value.

Dividends on common stock

Total dividends declared-total dividends on preferred stock

A capital account and drawing account

What are the two owners equity accounts needed

Dividends can be paid if sufficient retained earnings and sufficient cash are available.

What are two fundamental requirements for the payment of a dividend?

Stock issuance

When a corporation distributes its shares to existing or new stockholders in exchange for cash

Sufficient retained earnings and sufficient cash

When deciding whether to declare a cash dividend. A company's board of directors considers possible tax law changes and

To lower the market price per share of stock. To demonstrate commitment to stockholders while conserving cash. To signal an expectation of significant future earnings.

Why would a company issue a stock dividend?