Accounting Chapter 13
Reasons to Repurchase Treasury Stock
1. Company wanted to influence price of stock 2. To attain shares needed for employe bonus 3. To increase earnings per share 4. To have additional shares on hand in acquisition of other companies
Three items on a Stock Certificate
1. Corporations Name 2. Stockholder's name 3. Number of Shares of stock owned by stockholder
What are the three dates for Cash Dividends?
1. Declaration Date 2. Record Date 3. Payment Date
What are the two basic sources for Stockholders' equity? Describe each.
1. Paid-in Capital: amounts received from the stockholders in exchange for stock 2. Retained Earnings: equity earned by profitable operations that is not distributed to stockholders
Stockholders' Rights (4)
1. Vote: voting on corporate matters 2. Dividends: distribution of corporations earnings to stockholders 3. Liquidation: Stockholders receive their proportion of any remaining assets if the company goes out of business 4. Preemptive right: stockholders have the right to purchase their proportion of stocks if the company issues new shares. I.e if stockholders own 5% of a corporations stock then if the company issues 100,000 new shares 5,000 must first be afford to he previous stockholders
Par Value
An amount assigned by a company to a share of its stock
Which characteristic of a corporation is a disadvantage? A. Mutual agency B. Double Taxation C. Limited Liability D. None
B. Double Taxation
Advantage of Corporation
Can raise more money Continuous life Easy transfer of ownership Stockholders have limited liability
What is the journal entry for the Declaration Date?
Cash dividend Dividend Payable
Types of Stock and characteristics
Common Stock: Basic Ownership Preferred Stock: Has priority over common stock holders, receiving dividends 1st and assets 1st at liquidation
Assume that a company paid $6 per share to purchase 1,100 shares of its $3 par common stock as treasury. The purchase of treasury stock
Decreased total equity by $6,600
What is the journal entry for the Payment Date?
Dividend Payable Cash
cumulative preferred stock
Dividends cannot be paid to common stockholders before dividends are paid to preferred stockholders; preferred stockholders receive Dividends in Arrears (past years dividends if not already given) and current years dividends
non-cumulative preferred stock
Dividends not paid in the past will never be paid to the stockholder
If common stock is issued in exchange for a building, the building should be recorded at
Its market value
What is the journal entry for the Record Date?
None
What account is used to record the premium when issuing common stock? What type of account is this?
Paid in Capital in Excess of Par - Common; paid-in capital account
The two basic sources of stockholders' equity are
Paid-in capital and retained earnings
Stock Certificate
Representation of stockholder's ownership
Capital Stock
Represents the individual's ownership of the corporation's capital.
Treasury Stock
Stock a company has issued and repurchased
Stock Dividends affect ___________
Stock dividends only affect stockholders' equity accounts ( Retained Earnings, Stock Dividends, Common Stock...) The have no effect on total stockholders' equity, assets or liabilities
Issued Stock
Stock that has been issued but may or may not be held by stockholders.
Who declares dividends?
board of directors
Disadvantages of a corporation
double taxation ownership and management separate Expansion Gov't regulation High start up cost
Authorized Stock
the amount of stock that a corporation is authorized to sell as indicated in its charter