Ch 18 Shareholders' Equity

report two types of OCI

-Components of comprehensive income created during the reporting period in the statement of comprehensive income -The comprehensive income accumulated (AOCI) over the current and prior periods in the balance sheet

paid-in capital

-Invested by shareholders when they purchase shares of stock from the corporation or -Arise from the company buying back some of those shares or -From share-based compensation activities

reporting requirements of a corporation

-Primarily the required paperwork is intended to ensure adequate disclosure of information needed by investors and creditors

what is included in other comprehensive income

1. Net holding gains (losses) on available-for-sale investment in debt securities 2. Gains (losses) from and amendments to postretirement benefit plans 3. Deferred gains (losses) on derivatives 4. Adjustments from foreign currency translation

privately held corporations

A corporation that has only a few stockholders and whose stock is not available for sale to the general public.

treasury stock

A corporation's own stock that has been reacquired by the corporation and is being held for future use.

preferred stock

A special type of stock whose owners, though not generally having a say in running the company, have a claim to profits before other stockholders do.

retained earnings

An amount earned by a corporation and not yet distributed to stockholders.

Accumulated Other Comprehensive Income

Extends our view of income beyond net income reported in an income statement to include four types of gains and losses not included in income statements

publicly held corporations

Have shares of stock that are held by public (outside) investors

Common Shares

Represent an ownership interest, a residual claim on the firm's assets in liquidation, and govern through voting rights; No obligation for firm to pay a dividend; Can proxy their votes to others;

undistributed net income

Retained earnings represent a company's:

preemptive rights

Rights that entitle shareholders to purchase newly issued shares of a corporation's stock, equal in percentage to shares already held, before the stock is offered to outside buyers.

ease of raising capital

The corporation can sell additional shares of stock or issue bonds to raise additional funds.

limited liablity

The shareholders are only liable for the money that they had put into the business and not overall debts

share repurchases

a transaction in which a firm uses cash to buy back its own stock •Viewed as a way to "distribute" company profits without paying dividends •Decreasing the supply of shares in the marketplace supports the price of remaining shares •Acquisition of a company's own shares does not create an asset •Companies buy back shares to offset the increase in shares issued to employees in compensation plans

par value

a value assigned to a share of stock and printed on the stock certificate

liquidating dividend

dividend in excess of investor's share of retained earnings

preferred shares have equity and debt

equity because preferred shareholders receive dividends each year the company pays dividends and debt because the company is obligated to pay cash (or other assets) at a fixed or determinable rate in the future

disadvantages of corporate organizations

extensive reporting requirements, double taxation

double taxation

feature of taxation that allows stockholders' dividends to be taxed both as corporate profit and as personal income

Hybrid Corporations

have characteristics of both corporations and partnerships

advantages of corporate organizations

limited liability, ease of raising capital

redemption privilege

might allow preferred shareholders the option, under specified conditions, to return their shares for a predetermined redemption price.

Mandatorily Redeemable Preferred Stock

must be reported in the balance sheet as a liability, not as shareholders' equity

reinvested earnings

retained earnings/undistributed net income is also:

right of conversion

shareholders' right to exchange shares of preferred stock for common stock at specified conversion ratio.

shareholder's equity

the difference between total assets and total liabilities

stock split

the division of a single share of stock into more than one share; reducing the per share market price increases the stock's marketability by making it attractive to a larger number of potential investors

accounting for treasury stock

•Purchase of treasury stock is viewed as a temporary reduction of shareholders' equity •Cost of acquiring the shares is "temporarily" debited to the treasury stock account •Shares are considered to be issued, but not outstanding •Purchase of treasury stock and its subsequent resale is considered to be a "single transaction" •This approach to accounting for treasury stock is referred to as the "cost method"