Chapter 11 Accounting
Par Value
$.01 per share
Stock dividend
A dividend that distributes additional shares of a corporations own stock.
Par value meaning
Arbitrary amount assigned to each share of stock when it is authorized.
National beverage reissued 5,000 shares of the treasury stock at $28 per share.
Debit cash 140,000 credit treasury stock 125,000 credit additional paid in capital 15,000
Issued 8,000 shares of preferred stock at $20 cash per share.
Debit cash 160,000 credit preferred stock 80,000 credit additional paid in capital 80,000
National Beverage issued 100,000 shares of $0.01 par value common stock for $20 per share.
Debit cash 2,000,000 credit common stock 1,000 credit additional paid in capital 1,999,000
Issued 100 of the shares purchased on febraruy 1, for $30 cash per share.
Debit cash 3,000 credit treasury stock 2,000 credit additional paid in capital 1,000
Collected $40 cash per share from four individuals and issued 5,000 shares of common stock to each.
Debit cash 800,000 credit common stock 800,000
Issued 60 more of the shares purchased on february 1, for $15 cash per share.
Debit cash 900 debit additional paid in capital 300 credit treasury stock 1200
National beverage declares a cash dividend of $118,139,000 during its 2013 fiscal year.
Debit dividends 118,139,000 credit dividends payable 118,139,000
Dividends on common stock
Declared by board of directors not legally required creates liability at declaration Requires sufficient retained earnings and cash
Advantages of equity
Does not have to be repaid. dividends are optional.
Advantages of debt
Interest on debt is tax deductible. debt does not change stakeholder control.
Treasury shares
Issued shares that have been reacquired by the corporation.
Price/ Earnings ratio
Measure of the value that investors place on a company common stock. Current stock price/ earnings per share
What impact does the issuance of treasury stock for an amount higher than the purchase price have on net income?
No impact.
A corporation repurchases its stock to:
Send a signal that the company believes in its stock. Obtain shares to reissue for the purchase of other companies. Obtain shares to reissue to employees as part of stock option plans. Reduce the number of outstanding shares.
Three major advantage of the corporate form of business is the ease of raising capital as both large and small investors can participate in corporate ownership.
Simple to become an owner Easy to transfer ownership provides limited liability
Preferred stock
Stock that has specified rights over common stock.
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 proves a dividend.
Current dividend preference
The feature of preferred stock that grants priority on preferred dividends over common dividends.
Authorized shares
The maximum number of shares of capital stock of a corporation that can be issued, as specified in the charter.
Cumulative dividend preference
The preferred stock feature that requires current dividends not paid in full to accumulate for every year in which they are not paid. These cummalitive unpaid amounts must be paid before any common dividends can be paid.
Stock split creates more pieces of the same pie.
Trade a $10 bill for 2 $5 bills. 2 for 1 stock split.
Transactions between two investors do not affect the corporations accounting records.
True
Corporate ownership. Stakeholder benefits
Voting rights dividends residual claims preemptive rights
Stock options allow employees to purchase stock at a later date from the corporation at...
a fraction of the stocks market price.
Return on equity formula
amount earned for each dollar invested by common stockholders. Net income - preferred dividends/ average common stockholders equity
Stock split
an increase in the total number of authorized shares by a specified ratio; does not affect retained earnings.
Par value
an insignificant value per share of common stock specified in the charter.
no par value stock
capital stock that has no par value specified in the corporate charter.
Issued 6,000 shares of common stock to an outside investor at $40 cash per share.
debit cash 240,000 credit common stock 240,000
National beverage paid the previously declared cash dividend of $118,139,000.
debit dividends payable 118,139,000 credit cash 118,139,000
All temporary accounts, including dividends, are closed into retained earnings at each accounting year end.
debit retained earnings 118,139,000 credit dividends 118,139,000
National Beverage reacquired 50,000 shares of its common stock at $25 per share.
debit treasury stock 1,250,000 credit cash 1,250,000
Purchased 400 shares of the company's own common stock at $20 cash per share; the stock is now held in treasury.
debit treasury stock 8,000 credit cash 8,000
Dividends dates
declaration date date of record date of payment year end
Treasury stock does not get...
dividends
Outstanding shares
issued shares that are owned by stockholders.
treasury stock
issued shares that have been reacquired by the company.
Earnings per share formula
net income-preferred dividends/average number of common shares outstanding
Is treasury stock an asset?
no
Because corporation is a separate legal entity, it can
own assets incur liabilities sue and be sued enter into contracts
contributed capital
reports the amount of capital the company received from investors' contributions, in exchange for the company's common stock and preferred stock.
Issued shares
shares of stock that have been distributed by the corporation.
outstanding shares
shares that are currently held by stockholders (not the corporation itself)
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 stock on that date.
No profit or loss is recognized on...
treasury stock transactions.