account ch 11

Payout Ratio

(cash dividends declared on common stock)/net income measures percentage of earnings that a company distributes in the form of cash dividends

Dividends require information concering 3 dates...

1. decleration date - board authorizes dividends 2. Record Date - registered shareholders are eligible for dividend 3. Payment Date - the company issues dividend checks

stockholder rights

1. vote 2. share in earnings through dividends 3. keep the same percentage of ownership when new shares of stock are issued (preemptive right) 4. share in assetts upon liquidation in proportion to their holdings (residual claim)

2 for 1 stock spit on 100 shares of $10 par value stock results in...

200 shares of $5 par value

5000 shares of 7%, $100 par value stock, CUMALATIVE preferred stock outstanding. (so each share pays a $7 dividend bc 100*.07). The annual dividend is 35k (7 * 5000).If dividends are TWO years in arrears, then preferred stockholders are entitled to recieve the following dividends in the current year.

Dividends in arrears (35k * 2) 70k Current-year dividends 35k Total Preferred dividends 105k

Each paid-in capital account title should identify the stock to which it relates:

Paid-in Capital in Excess of Par Value—Preferred Stock Paid-in Capital in Excess of Par Value—Common Stock

treasury stock

a corporation's own stock that has been reacquired by the corporation and is being held for future use Treasury stock is a contra stockholders' equity account, not an asset. (decreases owner's equity)

how does retained earnings effect the balance sheet?

a debit balance in retained earnings indicates a deficit. This deficit would be put in place of retained earnings on the balance sheet, and subtracted from the total paid-in capital, rather than added to it

par value stock

capital stock that has been assigned a value per share

journal entry if 1000 shares of common stock are issued at $1 per share (1 dollar par value)

cash 1000 common stock 1000

journal entry if 1000 shares of common stock are issued at 5 per share, with 1 dollar par value

cash 5000 common stock 1000 Paid-in Capital in excess of par value 4000

difference between cumalative and non cumalative preferred stock.

cumalative adds up over the yrs, so if they missed the last two years they owe preferred stockholders a total of 3 years worth of dividends non cumalaitvie does not add up over the years

journal entry for: dec 1 - directors of company x declare a $0.50 per share cash dividend on 100,000 shares of $10 par value stock dividend is payable jan 20 to shareholders of record on dec 22

dec 1 (decleration date) cash dividends 50k (100k * 0.5) Dividends Payable 50k Dec 22 (Record Date) - no entry Jan 22 (Payment date) Dividends payable 50k Cash 50k

No-par value stock

fairly common, in many states the board of directors will assign a stated value

Cumulative Dividend

holders of preferred stock must be paid their annual dividend plus any dividends in arrears before common stockholders receive dividends.

how to stock dividends effect balance sheet accounts

increase in paid in capital and decrease in retained earnings so, stockholder's equity remains the same, the composition just changes.

what is a dividend

is a distribution to stockholders on a pro rata (proportional to ownership) basis. types 1. cash dividends 2. property dividends 3. stock dividends 4. Scrip (promissory note) can be expressed as a percentage of the par value or stated value, or as a dollar amount per share

Paid in capital

is the total amount of cash and other assets paid in to the corporation by stockholders in exchange for shares of ownership.

Return on Common Stockholder's equity

net income-preferred dividends/average common stockholder's equity shows how many dollars of net income the company earned for each dollar of common stockholder's equity

difference between common stock and preferred stock journal entry?

not much. just debit preferrred stock instead of common stock and indicate whether its common stock or preferred stock in the (Paid-in capital in excess of par value - (ps or cs) )

difference between preferred stockholders and common stock holders?

preferred stockholder have priority with dividends and assets in the event of liquidation, but they sometimes do not have voting rights (common stockholders always do)

Stock Splits

reduces market value of shares, increases shares outstanding and decreases par value, has no real effect on the balance sheet

payment of dividends effects...

retained earnings which is related to net income

journal entry for declaring a 10% stock dividend on 50k shares at $10 par value, and $15 market value

stock dividends 75k Common Stock Dividends Distributable (50k * 10 * .1) 50k Paid-in captial excess of par value 25k pretty much, this is just giving shareholder ten percent of their stocks bc its 50k shares for 15 which is 750k * .10 = 75k in stock dividends.

stockholder's equity section of balance sheet

stockholder's equity Paid in capital common stock (ex 2000) paid in capital excess of par value (ex 4000) total paid in capital = (4000 + 2000) = 6000 Retained Earnings (ex. 27000) Total Stockholder's Equity (27k + 6k) = 33k

how is treasury stock accounted for on the balance sheet and how does it effect owner's equity?

subtract it from total paid in capital and retained earnings, itll decrease stockholders equity. ex total paid in capital and retained earnings (ex 700k) Less: treasury stock ex (32k) Total Stockholder's Equity (668k)

journal entry for acquiring 4000 shares of your own stock @ 8 a share (treasury stock)

treasury stock 32k cash 32k