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