Chapter 18

Accumulated Other Comprehensive Income (Loss) (account title) Give a description, the normal balance, whether permanent/temporary, which financial statement, the classification & how they are reported on the financial statements.

-Contains accumulated amount of unrealized gains and losses that are not reported in net income -Credit or (Debit) Normal Balance -Permanent account -On Balance Sheet -Classified as Shareholders' Equity

Treasury Stock (account title) Give a description, the normal balance, whether permanent/temporary, which financial statement, the classification & how they are reported on the financial statements.

-Cost of stock repurchased from shareholders but not retired. -Debit Normal Balance -Permanent account -On Balance Sheet -Classified as Shareholders' Equity

Organization Expense (account title) Give a description, the normal balance, whether permanent/temporary, which financial statement, the classification & how they are reported on the financial statements.

-Costs incurred to incorporate the company. -Debit Normal Balance -Temporary account -On Income Statement -Classified as Operating expenses (administrative)

List the 3 types of cash flows (in correct order)

-Operating Activities -Investing Activities -Financing Activities

Retained Earnings (account title) Give a description, the normal balance, whether permanent/temporary, which financial statement, the classification & how they are reported on the financial statements.

-Represents the total of net income earned since the inception of the company minus any net losses, dividends declared, and other items that reduce RE such as retiring stock or reissuing TS. -Credit Normal Balance -Permanent account -On Balance Sheet -Classified as Shareholders' Equity

Common stock (account title) Give a description, the normal balance, whether permanent/temporary, which financial statement, the classification & how they are reported on the financial statements.

-Shares issued x Par value per share = Preferred stock -Credit Normal Balance -Permanent account -On Balance Sheet -Classified as Shareholders' Equity

Preferred Stock (account title) Give a description, the normal balance, whether permanent/temporary, which financial statement, the classification & how they are reported on the financial statements.

-Shares issued x Par value per share = Preferred stock -Credit Normal Balance -Permanent account -On Balance Sheet -Classified as Shareholders' Equity

Dividends Payable (account title) Give a description, the normal balance, whether permanent/temporary, which financial statement, the classification & how they are reported on the financial statements.

-The amount of cash dividends declared but not paid. -Credit Normal Balance -Permanent account -On Balance Sheet -Classified as a Current Liability

Additional Paid-In Capital - Common (account title) Give a description, the normal balance, whether permanent/temporary, which financial statement, the classification & how they are reported on the financial statements.

-The amount received for common stock in excess of the par value of the stock. -Credit Normal Balance -Permanent account -On Balance Sheet -Classified as Shareholders' Equity

Additional Paid-In Capital - Preferred (account title) Give a description, the normal balance, whether permanent/temporary, which financial statement, the classification & how they are reported on the financial statements.

-The amount received for preferred stock in excess of the par value of the stock. -Credit Normal Balance -Permanent account -On Balance Sheet -Classified as Shareholders' Equity

Additional Paid-In Capital - Treasury Stock (account title) Give a description, the normal balance, whether permanent/temporary, which financial statement, the classification & how they are reported on the financial statements.

-The amount received for treasury stock in excess of the par value of the stock. -Credit Normal Balance -Permanent account -On Balance Sheet -Classified as Shareholders' Equity

Deficit

A debit balance in the retained earnings account.

Stock split

A decrease in par value per share and an increase in number of shares outstanding. Purpose is to reduce selling price. More expensive than a stock dividend.

Liquidating Dividend

A distribution of assets to shareholders that exceeds the balance in the retained earnings account. The company records the amount as a debit to APIC.

Participating

A preferred stockholder may receive dividends in addition to the stated dividend. This allows preferred stockholders to participate in large cash dividends declarations. This is rare.

Nonparticipating

A preferred stockholder will only receive the stated dividend.

Redemptive privilege

A right, sometimes given to preferred shareholders, which allows them (under certain circumstances) to return their stock to the corporation for a predetermined redemption price (The preferred stockholder can make the company buy back the stock).

Right of conversion

A right, sometimes given to preferred shareholders, which allows them to exchange their stock for common stock at a specified conversion ratio.

Fractional shares

A stock dividend or stock split may result in some shareholders being entitled to fractions of whole shares. In this case, the company will make cash payments for the fractional shares. The company may call these payments "cash in lieu of dividends" or "cash in lieu of fractional shares."

Par value

An arbitrary amount printed on the stock certificate. Most corporations credit this amount to the common stock or preferred stock account when they issue shares. The corporation credits any consideration received in excess of par to additional paid in capital (also called paid in capital in excess of par).

Reverse stock split

An increase in par value per share and a decrease in number of shares outstanding. Usually done to increase selling price of stock.

Formula for Net Assets

Assets - Liabilities = Net Assets Net assets are another name for shareholders' equity.

Cumulative

Characteristic of most preferred stock. If the corporation does not pay the specified dividend in a given year, the unpaid dividends are "in arrears." The corporation must pay any preferred dividends in arrears before it can distribute any dividends to common shareholders. Dividends in arrears are not a liability. Dividends are not a liability until declared.

Stock dividend

Distribution of additional shares of stock to existing stockholders. No effect on assets or liabilities.

Large stock dividend

Distribution rate of 25% or more (per SEC). Company may debit either Retained Earnings or APIC for the par value of the additional shares to be issued.

Small stock dividend

Distribution rate of less than 20-25%. GAAP requires the corporation to reduce Retained Earnings for an amount equal to the market value on the date of declaration of the additional shares.

Dividend

Distributions of assets to shareholders. Reduces retained earnings account.

Ex-dividend date

For stock purchased on or after this date, the new owner will not receive the dividend previously declared. Usually two business days before the date of record.

Property dividend

Non-cash assets distributed to shareholders as a dividend.

Other comprehensive income

Non-owner changes in equity that are not part of traditional net income (for example, unrealized gains/losses on AFS).

Noncumulative

Noncumulative preferred stock does not receive dividends not declared for a specific year. These dividends are not "in arrears."

Manditorily redeemable preferred stock

Preferred stock that the issuing corporation must repurchase on a specified date. This stock is a liability on the balance sheet.

Treasury stock

Shares of a corporation's own stock that the corporation reacquired but did not retire. Stock that is issued but not outstanding.

Stated value

Similar to par value but not printed on stock certificate. This is the amount per share credited to the common stock or preferred stock account for issued shares. The corporation credits any consideration received in excess of stated value to APIC.

Outstanding Stock

Stock issued to and still owned by shareholders.

No par stock

Stock that has no par or stated value. The corporation credits the entire amount received to the common stock or preferred stock account. The corporation does not create (credit) additional paid in capital created when it issues stock.

Retired stock

The corporation cancels the stock certificates and adjusts the books to balances that would have existed fi the company had never issued the stock.

Date of record

The date on which it is determined who receives a declared dividend.

Accumulated other comprehensive income

The net effect of gains and losses recognized (but not in net income) from inception of a corporation to date. When these gains and losses are included in net income, the company must remove them from AOCI (reclassify). AOCI is reported on the balance sheet and statement of changes in shareholders' equity.

Preemptive right

The right to maintain one's percentage share of ownership when a company issues new shares. For example, if a shareholder owns 30% of the outstanding common stock of a company and the company decides to issue 100,000 new share. The existing shareholder would have the option to purchase 30,000 (30%) of the new shares in order to maintain a 30% ownership.

Callable preferred stock

The shares are redeemable at the option of the issuing corporation.

Retained Earnings

The undistributed earnings of a company. Retained Earnings = all net income earned since inception minus net losses and dividends declared.

Comprehensive income

Total non-owner change in equity for a reporting period. All changes in owners' equity except investments by owners and distributions to owners.

Paid-In Capital

aka Contributed capital. The amount of equity contributed by the corporation's shareholders. It consists of capital stock (common stock and preferred stock accounts) plus additional paid-in capital.