Chapter 18:Share holders equity

a share buyback can be viewed as a way to

"distribute" company profits without paying dividends. Capital gains from any stock price increase are taxed at lower capital gains tax rates than ordinary income tax rates on dividends.

Ownership interests of shareholders arise primarily from two sources:

(1) amounts invested by shareholders in the corporation and (2) amounts earned by the corporation on behalf of its shareholders.

two attributes reports are:

(1) components of comprehensive income created during the reporting period and (2) the comprehensive income accumulated over the current and prior periods

How we treat the difference between the cash paid to buy the shares and the amount the shares originally sold for

(amounts debited to common stock and paid-in capital—excess of par) depends on whether the cash paid is less than the original issue price (credit difference) or the cash paid is more than the original issue price (debit difference): 1.If a credit difference is created (as in Case 1 of Illustration 18-10), we credit paid-in capital—share repurchase. 2.If a debit difference is created (as in Case 2 of Illustration 18-10), we debit paid-in capital—share repurchase, but only if that account already has a credit balance. Otherwise, we debit retained earnings. (Reducing the account beyond its previous balance would create a negative balance.)

two primary source of shareholders equity?

1) amounts invested by shareholders in the corporation and (2) amounts earned by the corporation on behalf of its shareholders.

Comprehensive income extends our view of income beyond net income reported in an income statement to include four types of gains and losses not included in income statements:

1.Net holding gains (losses) on investments. 2.Gains (losses) from and amendments to postretirement benefit plans. 3.Deferred gains (losses) on derivatives. 4.Adjustments from foreign currency translation.

Whatever the reason shares are repurchased, a company has a choice of how to account for the buyback:

1.The shares can be formally retired. 2.The shares can be called treasury stock

how to journalizing more securities issue for a single price

As you might expect, the cash received usually is the sum of the separate market values of the two securities. Of course, each is then recorded at its market value. However, if only one security's value is known, the second security's market value is inferred from the total selling price as demonstrated in Illustration 18-8.

What is comprehensive income and how does it differ from net income?

Comprehensive income differs from the net income in the following ways: • Comprehensive income includes the changes between shareholders' equity and corporation like distribution of dividends and sale and purchase transactions of shares. • Net income includes the income earned through operating activities of the business. • Comprehensive income includes net income but does not form part of traditional net income.

how is OCI and AOCI reported?

OCI is reported in the statement of comprehensive income. AOCI is reported in the balance sheet along with retained earnings

how to calculate paying dividends to preferred stocks?

Preferred get paid first. % multiply the outstanding share - dividend for that period= remain extra is carry over to common. or if not, then accumulative for preferred stocks

treasury stock is

Shares repurchased and not retired

How is comprehensive income reported in a balance sheet?

The following are the two attributes of other comprehensive income that are reported: • "Components of comprehensive income created during the reporting period" • "Components of comprehensive income accumulated over current and prior periods"

decreasing (supply of shares in the market)

_____________ the supply of shares in the marketplace supports the price of remaining shares.

when a share repurchase is viewed as treasury stock, the cost of the treasury stock is simply reported

a reduction in total shareholders' equity

Retaining earnings

amounts earned by the corporation on behalf of its shareholders

What is paid-in capital?

amounts invested by shareholders in the corporation

Shareholders' equity formula

assets minus liabilities / net assets

the transactions between the corporation and its owners, analogous to retiring shares and then selling previously unissued shares. This approach known as.

buying and selling its shares

OCI first attribute reporting

components of comprehensive income created during the reporting period—can be reported either as (a) an expanded version of the income statement or (b) a separate statement immediately following the income statement. Regardless of the placement a company chooses, the presentation is similar. It will report net income, other components of comprehensive income, and total comprehensive income, Note that each component is reported net of its related income tax expense or income tax benefit

The resale of treasury shares is viewed as the

consummation of the single transaction begun when the treasury shares were repurchased

any net increase in assets resulting from the sale and subsequent repurchase

is reflected as Paid-in capital—share

any net decrease in assets resulting from the sale and subsequent repurchase

is reflected as a reduction in retained earnings.

OCI shares another trait with net income

is reported periodically in the income statement and also on a cumulative basis as part of retained earnings

Shares usually issue at

issue at FMV and quoted market price might be the best evidence of fair value.

In unusual instances in which a dividend exceeds the balance in retained earnings, the excess is referred to as a

liquidating dividend

the primary motivation for most stock repurchases is to

offset the increase in shares that routinely are issued to employees under stock award and stock option compensation programs

some gains and losses aren't included in earnings until they are realized through the sale of the securities but are considered a component of

other comprehensive income

the total non-owner change in equity for a reporting period. The non-owner changes other than those that are part of traditional net income are the ones reported as

other comprehensive income

four classifications within shareholders' equity are

paid-in capital, retained earnings, accumulated other comprehensive income, and treasury stock

What is comprehensive income?

provides a more expansive view of the change in shareholders' equity than does traditional net income

When shares are formally retired

reduce precisely the same accounts that previously were increased when the shares were sold, namely, common (or preferred) stock and paid-in capital—excess of par.

We view the purchase of treasury stock as a temporary reduction of

shareholders' equity, to be reversed later when the treasury stock is resold. The cost of acquiring the shares is "temporarily" debited to the treasury stock account

issue shares for non-cash

shares might be given in payment for land, or for equipment, or for some other noncash asset.

OCI second measure reporting

the comprehensive income accumulated over the current and prior periods—is reported as a separate component of shareholders' equity following retained earnings. Note that amounts reported here—accumulated other comprehensive income (AOCI)—represent the cumulative sum of the changes in each component created during each reporting period throughout all prior years.

when cash is paid to retire stock

the effect is to decrease both cash and shareholders' equity; the size of the company literally is reduced

primary source of paid-in capital is

the investment made by shareholders when buying preferred and common stock.

What is no par common stock mean?

the price is unknown for a single stock and the price can be variable depending on the market price.

If dividends are paid that exceed the amount of assets earned by the company

then management is, in effect, returning to shareholders a portion of their investments, rather than providing them a return on that investment.

Not included in the comprehensive income. Comprehensive income includes net income as well as other gains, losses, and other adjustments that change shareholders' equity.

traditional net income may not be included in which income statement?

some of the shares previously sold were bought back by the corporation from shareholders

treasury stock

FMV for stock price based on

• A quoted market price for the shares. • A selling price established in a recent issue of shares for cash. • The amount of cash that would have been paid in a cash purchase of the asset or service. • An independent appraisal of the value of the asset received. • Other available evidence.