Chapter 10 accounting 202

Treasury Stock

A corporation's own stock that it has reacquired (debit treasury stock, credit cash) (reissued: debit cash, credit treasury stock, credit additional paid in capital) (reissued for less: debit additional paid in capital instead of credit)

record date

A specific date on which the company will determine the registered owners of stock and, therefore, who will receive the dividend (no journal entry for this day)

publicly held corporation

Allows investment by the general public and is regulated by the Securities and Exchange Commission

Largest to smallest share

Authorized, issued, outstanding

Issuance of common stock journal entry

Debit cash and credit common stock (if issued above par value credit additional paid in capital)

large stock dividend journal entry

Debit stock dividends and credit common stock

small stock dividend journal entry

Debit stock dividends, credit common stock and credit additional paid in capital

Why companies do stock splits and large stock dividends

Declared mainly due to the effect they have on stock prices.

Stock price after stock split

Divide previous stock price by the split ratio

How to calculate authorized shares

Issued + unissued

How to calculate shares outstanding

Issued shares- treasury shares

Return on equity

Net Income / Average Stockholders' Equity

How to calculate issued shares

Outstanding + treasury stock

Retained earnings

Represents all net income, less all dividends, since the company began (BRE+ NI- D= ERE)

Calculate total stockholders equity

Share capital + retained earnings - treasury shares (or assets - liabilities)

preferred stock

Stock with preference over common stock in the payment of dividends and the distribution of assets. (Receive dividends first, have a preference of what assets they get if Corp is dissolved) (debit cash and credit preferred stock [credit additional paid in capital if issued over par value])

limited liability

Stockholders in a corporation can lose no more than the amount they invested in the company

statement of stockholders' equity

Summarizes the changes in the balance in each stockholders' equity account over a period of time

Initial Public Offering (IPO)

The first time a corporation issues stock to the public

Par value

The legal capital assigned per share of stock

Stated value

The legal capital assigned per share to no-par stock

Outstanding stock

The number of shares held by investors; excludes treasury shares

Price Earnings Ratio

The stock price divided by earnings per share so that both stock price and earnings are expressed on a per share basis

accumulated deficit

a debit balance in retained earnings

stock split

a large stock dividend that includes a reduction in the par or stated value per share

stock dividend

additional shares of a company's own stock given to stockholders

Advantages and disadvantages of corporations

advantage is that there is limited liability. disadvantage is that they are taxed more heavily than other forms of business organizations

S corporation

allows a company to enjoy limited liability as a corporation, but tax treatment as a partnership

No-par value stock

common stock that has not been assigned a par value

double taxation

corporate income is taxed once on earnings at the corporate level and again on dividends at the individual level

articles of incorporation

describes the nature of the firm's business activities, the shares to be issued, and the composition of the initial board of directors

Dividends

distributions by a corporation to its stockholders

Dividend Yield

dividends per share divided by the stock price

privately held corporation

does not allow investment by the general public and normally has fewer stockholders

earnings per share

measures the net income earned per share of common stock (NI-dividends on preferred stock)/average shares of common stock outstanding

Cumulative

preferred stock shares receive priority for future dividends, if dividends are not paid in a given year

venture capital firms

provide additional financing, often in the millions, for a percentage ownership in the company

Redeemable

shares can be returned to the corporation at a fixed price

Growth stocks

stocks that tend to have higher price-earnings ratios and are expected to have higher future earnings

value stocks

stocks that tend to have lower price-earnings ratios and are priced low in relation to current earnings

paid-in capital

the amount stockholders have invested in the company

Payment date

the date of the actual distribution of dividends (debit dividends payable and credit cash)

Declaration date

the day on which the board of directors declares the cash dividend to be paid (debit dividends and credit dividends payable)

property dividend

the distribution of a noncash asset to stockholders

Issued Stock

the number of shares sold to investors; includes treasury shares

additional paid-in capital

the portion of the cash proceeds above par value

Authorized stock

the total number of shares available to sell, stated in the company's articles of incorporation

Organization chart

traces the line of authority within the corporation

dividends in arrears

unpaid dividends on cumulative preferred stock

Angel investors

wealthy individuals in the business community willing to risk investment funds on a promising business venture