Chapter 11: understanding & formulas

"Accounting for Preferred stock"-Computation for Cumulative Dividend (dividend in arrears with declared dividend)

*When preferrred Stock is cumulative, preferred dividends not declared in a given period are called dividends in arrears. To illustrate, assume that scientific leasing has 5,000 shares of 7%, $100 par value, cumulative preferred stock outstanding. Each $100 share pays a $7 dividend (.07 X $100). The annual dividend is 35,000 (5,000 X $7 per share). If dividends are two years in arrears, preferred stockholders are entitled to receive the following dividends in the current year. Dividends in arrears (35,000 X 2): $70,000 Current-year dividends: 35,000 Total preferred dividends: 105,000

"Issuing par value common stock or cash"-Recording issuance of c/s

-The cash proceeds from issuing par value stock may be equal to, greater to, or less than par value. -when the company records issuance of common stock for cash, it credits the par value of try shares to common stock: Assume that Hydro-Slide, Inc. issues 1,000 shares of $1 par value common stock. Prepare Hydro-Slide's journal entry if (a) 1,000 share are issued for $1 per share, and a. Cash 1,000 Common Stock (1,000 x $1) 1,000

"Issuing Par Value Common Stock For Cash"-Record PIC account above or below PAR value

-it also records in a separate paid-in capital account the proportion of the proceeds that is above or below par value. Assume that Hydro-Slide, Inc. issues an additional 1,000 shares of $1 par value common stock for cash at $5 per share. Prepare Hydro-Slide's journal entry if (b) 1,000 shares are issued for $5 per share. b. Cash 5,000 Common Stock (1,000 x $1) 1,000 Paid-in Capital in Excess of Par Value-Common stock *4,000 *the amount received above the par value, in this case $4 ($5-$1), is credited to PIC in excess of par-common stock.

Beginning retained earnings is $500,00 and net income is $180,000. What is the TOTAL dividend that common shareholders recieved all together ?

1. Beginning r/e Add: net income 2. Ending r/e Less: total amount solved =declared dividends 3. Declared dividends Less: total div to p/s =remainder amount total div to c/s Handout, #10, no. 7, pg. 12 Handout, #11, e., page 13

Allocating cash dividends to two classes of stock FORMULA

5-step process: (1) Compute DPS of Preferred stock. (2) Compute total p/s div per year (annual total p/s dividend) (formula: shares outstanding * $/ share div= "$ annual div" (3) Calculate dividends in arrears and current year dividend. Add them. Result: Allocated dividend to preferred stock. (4) Calculate allocated dividend to common stock (Formula: Total dividend-allocated div to p/s=remainder allocated div to c/s) E.g. Handout, #3, pg. 6 At December 31, 2016, Corning Company has the following: -Common stock, $10 par, 10,000 shares authorized, 9,000 issued, 8,000 outstanding -Preferred Stock, $100 par, 8%, cumulative, 1,000 shares authorized, issued, and outstanding. -The company did not pay any dividend during 2015 or 2014. REQUIRED: Compute the amount of dividend to be received by the common and preferred stockholders in 2016 if the company declared a dividend of 60,000. 1. $100*8%= $8/share div 2. 1000 shares oustanding * $8/share div: $8000 (total p/s div per year [annual total p/s div]) 3. $8000/year * 2 years (2014 or 2015): 16000 ADD (Current Div): 8000 =Allocated div to p/s / Total pref div: $24,000 4. $60,000 (declared div) Less: 24,000 (total preferred div) =$36,000 (remainder allocated to c/s)

"Accounting for Preferred stock"-Understanding

Accounting for Preferred Stock Typically, preferred stockholders have a priority as to: 1. Distributions of earnings (dividends). 2. Assets in event of liquidation. 3. Generally do not have voting rights. *Accounting for preferred stock at issuance is similar to that for common stock.

If you hold one share of the common stock, how much of a dividend would you receive ?

Allocated amount of c/s / shares outstanding

"Accounting for Common stock"-Computation for finding total dividends paid for the year ($) to common stock

DPS * shares outstanding = $total dividends to c/s E.g. quiz 0.10 * 3000= $300

"Accounting for Treasury Stock-" Understanding

Definition: Treasury stock is a corporation's own stock that it has reacquired from shareholders but not retired. -Corporations acquire treasury stock for various reasons: 1.To reissue the shares to officers and employees under bonus and stock compensation plans. 2. To enhance the stock's market value. 3. To have additional shares available for use in the acquisition of other companies. 4. To increase earnings per share.

"Dividends"- Types of dividends

Distribution of cash or stock to stockholders on a pro rata (proportional to ownership) basis. Types of Dividends: 1.Cash dividends. 2. Property dividends. 3.Stock dividends. 4. Scrip (promissory note). Dividends are generally reported quarterly as a dollar amount per share.

"Accounting for Preferred stock"-Understanding "Dividend Preferences " & "Cumulative Dividend"

Dividend Preferences -Right to receive dividends before common stockholders. -Per share dividend amount is stated as a percentage of the preferred stock's par value or as a specified amount. *DPS (dividend per share) Cumulative Dividend -Preferred stockholders must be paid both current-year dividends and any unpaid prior-year dividends before common stockholders receive dividends. *dividend in arrears

"Accounting for Treasury Stock-" Computing Treasury Stock balance

Example (*on exam) Handout, #2, pg. 6 ..."After the initial sale it bought back 4,000 shares of its stock at a cost of $6 each" (Handout,page 6) Formula computation for "7. Treasury stock balance at December 31, 2015 is:" 4000*6= 24,000

"Issuing par value common stock or cash"-Computing Treasury stock balance

Example (*on exam) Handout, #2, pg. 6 ..."After the initial sale it bought back 4,000 shares of its stock at a cost of $6 each" (Handout,page 6) Formula computation for "7. Treasury stock balance at December 31, 2015 is:" 4000*6= 24,000

T/F: the date of record refers to the date a cash dividend is paid to stockholders

False

T/F: Stock dividends are a mechanism to keep the market price of stock affordable

False, stock splits only

p/s & c/s formula (hand out): Finding shares outstanding (for p/s)

Formula: Total amount recieved from issued p/s / $par= shares outstanding E.g., Hand out, #12, last page. 1. how many shares of preferred stock are outstanding? 1,250,000/$100= 12,500 *used because treasury stock is not involved.

p/s & c/s formula (hand out): Finding shares outstanding (for c/s)

Formula: number of shares issued less: treasury stock=shares outstanding E.g., Hand out, #12, last page. 7. How many shares of common stock are outstanding 400,000 less: 25,000 $375,000

"Accounting for Preferred stock"-Computation for finding DPS (dividend per share) of Preferred stock(Cumulative)

Formula: p/s par $ * %= DPS (dividend per share) E.g. Handout, #4, pg. 7 Preferred Stock, $100 par, 7%, cumulative, 1,000 shares authorized, issued, and outstanding. d). $100 * 7%= $7/ share div *Applied when cumulative *Applied when finding the amount of dividend allocated to common and preferred stockholders *Applied when finding the DPS of preferred stock as a result of distribution ("What are the dividends per share of Preferred stock as a result of this distribution?")

"Accounting for Common stock"-Computation for finding DPS (dividend per share) of Common stock

Formula: total dividends to c/s (remainder allocated to c/s during the allocation of div) / shares outstanding E.g. Handout, #4, Pg. 7 At December 31, 2016, Forgione Company has the following: Common stock, $10 par, 10,000 shares authorized, 8,000 issued, 7,000 outstanding. c). 29,000/ 7000 "outstanding"= $4.14 per share *Applied when asked "What are the dividends per share of common stock as a result of this distribution?" *Applied when asked "What is the dividend per share to common stock?"

p/s & c/s formula (hand out): Finding shares issued

Formula: total issued amount/ $ par= shares issued *Applied when given only total amount received E.g., Hand out, #12, last page. 3. how many shares of common stock issued? 800,000/ $2= $400,000

"Cash Dividends"- Understanding Allocating Cash Dividends Between Preferred & Common Stock

Holders of cumulative preferred stock must be paid any unpaid prior-year dividends and their current year's dividend before common stockholders receive dividends.

"Cash dividends: allocating p/s & c/s"- Journaling of declaration of dividend

Illustration: At December 31, 2016, IBR declares a $50,000 cashdividend. Prepare the entry to record the declaration of the dividend. Cash Dividends 50,000 Dividends Payable 50,000

"Cash dividends: allocating p/s & c/s"- Journaling Record of declaration of the dividend

Illustration: On December 31, 2015, IBR Inc. has 1,000 shares of 8%, $100 par value cumulative preferred stock. It also has 50,000 shares of $10 par value common stock outstanding. At December 31, 2015, the directors declare a $6,000 cash dividend.Prepare the entry to record the declaration of the dividend. Cash Dividends 6,000 Dividends Payable 6,000 *Preferred Dividends: 1,000 shares x $100 par x 8% = $8,000

"Accounting for Treasury Stock-" Journal Entry

Illustration: On February 1, 2015, Mead acquires 4,000 shares of its stock at $8 per share. Treasury Stock (4,000 x $8) 32,000 Cash 32,000

"Accounting for Treasury Stock-" Shares Outstanding formula

Number of Shares issued Less: number of treasury stock shares= Shares Outstanding Example (*on exam) Handout, #2, pg. 6: Formula computation for "3. The number of shares of common stock outstanding is:" 35,000 (# of c/s issued) Less: 4,000 (# of t/s issued)= 31,000 (outstanding shares)

Cumulative vs Non-cumulative

Preferred stock is categorized as Cumulative dividends (accumulate dividends) and Non-cumulative (dividends don't accumulate).

"Accounting for Treasury Stock-" Understanding

Purchase of Treasury Stock: -Companies generally use the cost method. -Debit Treasury Stock for the price paid to reacquire the shares. -Treasury stock is a contra stockholders' equity account. -Reduces stockholders' equity.

"Accounting for Preferred stock"-Journal Entry

Stine Corporation issues 10,000 shares of $10 par value preferred stock for $12 cash per share. The journal entry to record the issuance is: Cash 120,000 Preferred Stock (10,000 x $10) 100,000 Paid-in Capital in Excess of Par 20,000 *Preferred stock may have a par value or no-par value.

What is the total amount recieved from issuing common stock? (FORMULA)

Total amt from par value ($) + total amt from PIC INXS of par ($) = $ E.g. Handout #12, no 2, pg. 14 *Used individually in this problem *Also Used when finding average selling price of a share of c/s (#10 & #12)

"Accounting for Treasury Stock-" Understanding

Treasury Stock Features: -No voting rights -Does not earn dividends -contra equity account

T/F: Cash and stock dividends reduce retained earnings

True

T/F: Dividends payable is recorded at the time a cash dividend is declared

True

What was the average selling price of a share of c/s(FORMULA)?

Use formula steps 1. Total amt from par value ($) + total amt from PIC INXS of par= total amt received from issued c/s 2. Total amount recieved from issued c/s / # of shares issued = $ *Remeber "total amt recieved from issued c/s" =Total amt from par value ($) + total amt from PIC INXS of par= E.g. Handout #12, no. 4, last page. E.g. Handout #10, no. 3, page 12

"Accounting for Preferred stock"-Computation for finding DPS (dividend per share) of Preferred stock(NON-Cumulative)

allocated p/s / shares outstanding = DPS E.g. #5 on hand out pg. 8 *Applied when non-cumulative Applied when finding the amount of dividend allocated to common and preferred stockholders *Applied when finding the DPS of preferred stock. "What is the dividend per share to preferred stock.