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