Accounting chapter 11

Over the life of a corporation it has two choices of what to do with its net income:

(1) pay it out as dividends to its stockholders, or (2) keep it and use it for business activities.

treasury stock

(a contra stockholders' equity account). When a corporation reacquires shares of its own stock and does not retire them, the corporation is said to have? The number of OUTSTANDING shares is equal to the number of issued shares minus the number of treasury shares.

Cash dividends

(usually referred to as "dividends") are a distribution of the corporation's net income. Dividends are analogous to draws/withdrawals by the owner of a sole proprietorship. As such, dividends are not expenses and do not appear on the corporation's income statement.

Earnings per share

------------must appear on the face of the income statement if the corporation's stock is publicly traded. The earnings per share calculation is the after-tax net income (earnings) available for the common stockholders divided by the weighted-average number of common shares outstanding during that period.

dividends declared

The term retained earnings refers to a corporation's cumulative net income (from the date of incorporation to the current balance sheet date) minus the cumulative amount of ------------.

what happens when the next sale of treasury stock results in a "loss" and it exceeds the credit balance in Paid-in Capital from Treasury Stock.

amt is too large to be absorbed by the credit balance in Paid-in Capital from Treasury Stock. As a result, the first part of the "loss" goes to Paid-in Capital from Treasury Stock and the remaining $ is debited to Retained Earnings

Capital stock

is a term that encompasses both common stock and preferred stock. Paid-in" capital (or "contributed" capital) is that section of stockholders' equity that reports the amount a corporation received when it issued its shares of stock.

stock split

A ------- will not change the general ledger account balances and therefore will not change the dollar amounts reported in the stockholders' equity section of the balance sheet. (Although the number of shares will double, the total dollar amounts will not change.)

Large stock dividend.

A stock dividend is considered to be large if the new shares being issued are more than 20-25% of the total value of shares outstanding prior to the stock dividend. On the declaration date of a large stock dividend, a journal entry is made to transfer the par value of the shares being issued from retained earnings to the paid-in capital section of stockholders' equity.

Small stock dividend.

A stock dividend is considered to be small if the new shares being issued are less than 20-25% of the total number of shares outstanding prior to the stock dividend. On the declaration date of a small stock dividend, a journal entry is made to transfer the market value of the shares being issued from retained earnings to the paid-in capital section of stockholders' equity.

stock dividend

A------------- does not involve cash. Rather, it is the distribution of more shares of the corporation's stock. Perhaps a corporation does not want to part with its cash, but wants to give something to its stockholders. If the board of directors approves a 10% stock dividend, each stockholder will get an additional share for each 10 shares held.

declaration date

Before dividends can be distributed, the corporation's board of directors must declare a dividend. The date the board declares the dividend is known as the-------- and it is on this date that the liability for the dividend is created. Legally, corporations must have a credit balance in Retained Earnings in order to declare a dividend. Practically, a corporation must also have a cash balance large enough to pay the dividend and still meet upcoming needs, such as asset growth and payments on existing liabilities. NO ENTRY ON THE RECORD DATE

The par amount is credited to

Common Stock. State laws often require that a corporation is to record and report separately the par amount of issued shares from the amount received that was greater than the par amount.

earnings per share

If a corporation reacquires a significant amount of its own stock, the corporation's may increase because there are fewer shares outstanding.

stockholders' equity account Treasury Stock

If the corporation were to sell some of its treasury stock, the cash received is debited to Cash, the cost of the shares sold is credited to the---------------, and the difference goes to another stockholders' equity account. Note that the difference does not go to an income statement account, as there can be no income statement recognition of gains or losses on treasury stock transactions.

Retained Earnings.

The amount a company keeps is the balance in a stockholders' equity account called -------.This general ledger account is a real or permanent account with a normal credit balance.

income summary account

The closing entries of a corporation include closing the to the ------------Retained Earnings account. If the corporation was profitable in the accounting period, the Retained Earnings account will be credited; if the corporation suffered a net loss, Retained Earnings will be debited.

stated value

While some states require a par value for common stock, other states do not. If there is no par value, some states require a If this is the case, the entry will be the same as the above except that the term "stated" will be used in place of the term "par":

(1) a small stock dividend, or (2) a large stock dividend.

stock dividend requires a journal entry to transfer an amount from the retained earnings section of the balance sheet to the paid-in capital section of the balance sheet. The amount transferred depends on whether the stock dividend is

If the corporation sells any of its treasury stock for less than its cost,

the cash received is debited to Cash, the cost of the shares sold is credited to Treasury Stock, and the difference ("loss") is debited to Paid-in Capital from Treasury Stock (so long as the balance in that account will not become a debit balance). If the "loss" is larger than the credit balance, part of the "loss" is recorded in Paid-in Capital from Treasury Stock (up to the amount of the credit balance) and the remainder is debited to Retained Earnings.