Chapter 11

The increase in Common Stock is the...

# of shares sold x par value per share

Authorized Shares

The maximum number of shares of capital stock of corporation tha tcan be issued, as specified in the charter.

As soon as the board makes the declaration, the companies records... (2)

an increase in it's liabilities and a corresponding increase in the dividends declared account

stock split

an increase in the total number of authorized shares by a specified ratio;does not affect retained earnings (cutting 4 piece pizza)..each piece into 2 more pieces

par value

an insignificant per share of capital stock specified in the charter

Is treasury stock was reissued @ a price below it's repurchase price, the difference between the repurchase price and the reissue price is recorded as a reduction in paid in capital.

dr. Cash...(5,000x23).........115000 cr. additional paid in capital [15,000x(25-23)] 10,0000 cr. Treasury Stock (5,000x25)....125000

Reissuance of Treasury Stock (Jentry) (National Beverage reissues 5,000 shares of his treasury stock for $26 per share (5,000x$26=$130,000

dr. Cash.........................130,000 Cr. Treasury Stock .......125,00 cr. Additional Paid in Capital....5,000

Repurchase of Stock (Jentry) (National Beverage repurchased 50,000 shares of its stock for $25 per share (50,000 sharesx$25=$1,250,000)

dr. Treasure Stock........125000 cr. Cash..............................125000

Cumulative Dividend Preference

the preferred stock feature that requires current dividends no paid in full to accumulate for every year in which they are not paid. These cumulative unpaid amounts (dividends in arrears) must be paid before any common dividends can be paid.

Corporations may find long term financing by obtaining it through issuing stock which is called

Equity Financing

Outstanding shares

Shares that are currently held by the stockholders (not by the corporation itself)

Advantages of Equity Financing

1. Equity does not have to be repaid. Debt must be repaid or Refinanced 2. Dividends are optional. Interest must be paid on debt

Advantages of Debt Financing

1. Interesting on debt is tax deductible. Dividends on stock are not tax deductible. 2. Debt does not change stockholder control. A stock issue gives new stockholders the right to vote and share in the earnings, diluting exisiting stockholders' control.

Benefits of common stock(4)

1. Voting Rights 2. Dividends 3. Residual Claim 4. Preemptive Rights

Reasons why a corporation may want to repurchase its stock from existing stockholkders (4)

1. to distribute excess cash to stockholders 2. to sent a signal to investors that the company itself believes its own stock is worth acquiring. 3. To obtain shares that can be reissued as payment for purchases of other companies 4. To obtain shares to reissue to employees as part of employee stock option plans

dividends on preferred stock formula

2,000 shares x $20 par value x6% divident = $2,400

All transactions between a company and it's stockholders affect the company's WHAT only?

Balance Sheet. They do not affect the income statement.

The Cost Method

Companies record the purchase of treasury stock based on the cost of the shares when they are purchased by the company

This indicates the maximun number of shares of stock that the corporation is allowed to issue

Corporation's Charter

Corporations may also find long term payment by borrowing money from lenders

Debt Financing

Recording Stock Issuance (National Beg. issues 100,000 shares of its. $.01 par value stock at the market price existing at the time of issuance of $10 per share

Dr. Cash (100,00x10)........1,000,000 cr. common stock (100,000 x.01) 1,000 cr. Additional Paid-In Capital (1,000-1,000)....999,000

EPS

Earnings Per Share, key ratio that is expressed in terms of the number of outstanding shares owned by investors

IPO

Initial Public Offering- first issuance of a company's stock to the public

Stock Split

Number of shares change, par value per share changes. no journal entry

Contributed Capital

Reports the amount of capital the company received from investors' contributions in exchange for company stock. 1. preferred stock, common stock, authorized, issued, additional paid in capital, total contributed capital

Seasoned New Issues

When a company has issued stock previously, additional issuances of new stock by the company

stock dividend

a dividend that distributes additional shares of a corporations own stock

no-par value stock

capital stock that has no par value specified in the corporate charter

preferred stock carries priority over

common stock

2 Most common dividend preferences (preferred stock)

current & cumulative

When a stock dividend occurs.....what must the company do in the journal entry?

decreased retained earnings (to show that a dividend was declared) and increase Common Stock (to show that additional shares were issue)

Preferred Stock Issuance Journal Entry (increases a company's cash and it's stockholders equity) (National Bev. issued 10,000 shares of its $1 par value preferred stock for $5 dollars per share (50,000 cash recieved). Preferred stock increased by its par value for each share issued (1$x10,000)

dr. cash.....50,000 cr. Preferred Stock........10,000 Cr. Additional Paid In Cap....40,000

Recording Dividends Declared

dr. dividends declared...36,800,000 cr. dividends payable........36,800,00

Payment Date Journal Entry

dr. dividends payable.....36800000 cr. Cash............................36,800,000

Journaling Stock Dividends( National Beverage declared a 20 percent dividend on the 38 millions shares of .01 par value common stock outstanding at the time. Accounted for it by moving 76,000 (38 million x 20% x.01 ) from retained earnings to common stock

dr. retained earnings....76000 cr. common stock ..............76,000

Dividends on preferred stock are paid at a

fixed rate

When a company reissues shares of its treasury stock it does not report

gain or loss on sale

Treasury Stock

issued shares that have been reacquired by the company.

When the board of directors formally declares a dividend a ____________ is created

liability

Stock Dividend

numbers of shares change, par value per share does not change. dr. retained earnings....par value cr. common stock.......par value

The most basic form of the ownership structure of a corporation requires that it must have

one type of stock called a common stock.

The declaration of a cash dividend...

reduces stockholders equity bc dividends declared are closed into retained earnings and also reduces cash

Treasure Stock

reports shares that were previously owned by stockholders but have been reacquired and are now held by the corporation.

Retained Earnings

reports the cumulative amount of net income earned by the company less the cumulative amount of dividends declared since the corporation first organized. Represents earned Capital

Issued Shares

shares of stock that have been distributed by the corporation

preferred stock

stock that has specified rights over common stock

Income Investments

stocks that consistently pay dividends

Dividends Declared Account

temporary account that summarizes dividends declared throughout the year & is close to retained earnings at year end, causing decrease in retained earnings.

The Increase in Additional Paid-In Capital is the....

the amount of cash recieved in excess of this amount

Common Stock

the basic voting stock issued by a corporation to stockholders

Payment Date

the date on which a cash dividend is paid to the stockholders of record

Declaration date

the date on which the board of directors officially approves a dividend

Record Date

the date on which the corporation prepares the list of current stockholders as shown on its records. dividends can be paid only to the stockholders who own the stock on that date. No journal entry

Current Divident Preference

the feature of preferred stock that grants priority on preferred dividends over common dividends

One main reason for issuing a stock dividend is that it reduces

the market price per share of stock.

dividends on common stock

total dividends declared-dividends on preferred stock

Preferred stock does not generally grant

voting rights

Accumulated Deficit

when a company accumulates more net losses than net income over its life.

Growth investment

when investors prefer to buy stocks that pay little or no dividends because the companies that reinvest the majority of their earnings tend to increase their future earnings potential along with stock price.