Accounting chapter 11
Partnership
Formed by two or more people reaching a mutual agreement about the terms of the relationship
Declaration date, date of record, date of payment, year end
Four important dates for a cash dividend
Stock options
Give employees the option of acquiring the company's stock at a predetermined price often equal to the then current market price
Price earnings ratio
Current stock price/ earnings per share
Accumulated other comprehensive income
Reports unrealized gains and losses that are temporary changes in the value of certain assets and liabilities that the company holds.
Market value
A small stock dividend is recorded at
They don't expect strong future performance
A low PE performance means
Seasonal new issues
Additional issues of new stock by the company if the company had issued stock previously
Payment date
A cash outflow occurs on which dividend date?
Sufficient cash
A corporation must have this to pay the dividend. If a company has retained earnings it doesn't mean they have this as well.
Payment date
A dividend that distributes additional shares of a corporations own stock
Investors expect the company to improve in the future and increase its profits.
A high PE ratio means
Par value
A large stock dividend is recorded at
Year end date
All temporary accounts including dividends are closed into retained earnings.
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 capital stock specified in the charter. First introduced to prevent stockholders from removing contributed capital of businesses that were about to go bankrupt.
Companies disclose any restrictions in their financial statement notes
Because restrictions on retained earnings can limit the ability to pay dividends accounting rules require that...
Debt financing
Borrowing money from lenders.
No par value stocks
Capital stock that has no par value specified in the corporate charter. It does not have a specified legal value per share. Is a legal concept and is not related to the market value of the company's stock.
Statement of stockholders equity
Contains a column for each stockholders equity account and shows factors that increased and decreased the account balances during the period.
2 for 1
Each issued share is called in and two new shares are issued in its place
Primary advantages of a partnership
Ease of information. Complete control by the partners. Lack of income taxes
Preferred stock allows different voting rights. Dividends may be paid at a fixed rate. Carries priority over common stock.
How does preferred stock differ from common stock?
Earnings per share
How much profit is earned for each share of common stock outstanding
Dividends can never be in arrears
If preferred stock is noncumulative,
Treasury stock
Issued shares that have been reacquired by the company
Equity financing
Issuing new stock to investors. Does not have to be repaid but interest must be paid on debt
Return on equity
Net income- preferred dividends/ average common stockholders equity
Earnings per share
Net income- preferred dividends/ average number of common shares outstanding
Declaration date
On which date is a liability credited?
Drawing account
Record the owners withdrawals of cash or other assets from the business
Return on equity
Reports a company's return to common stockholders
Treasury stock
Reports shares that were previously issued to and owned by stockholders but have been reacquired and at now held by the corporation.
Issued shares
Shares of stock that have been distributed by the corporation
Outstanding shares
Shares that are currently held by stockholders
Current dividend preference
Sharesxparvaluexdividend
Dividends in arrears
Sharesxparvaluexdividendx2years
Transferring an amount from retained earnings to common stock
Stock dividends are recorded by
Transferring an amount from retained earnings to contributed capital amounts.
Stock dividends are recorded by
Preferred stock
Stock that has specified rights over common stock
Income investment
Stocks that consistently pay dividends
Growth investments
Stocks that pay little or no dividends
Contributed capital
The amount of capital the company received from investors contributions in exchange for the company's common stock and preference stock
Charter
The articles of incorporation that spells out information about the corporation such as its name adress nature of business and ownership Structure.
Common stock
The basic voting stock issued by a corporation to stockholders
Retained earnings
The company's total earnings that have been retained in the business. The amount of equity that the company itself has generated for stockholders but not distributed to them.
Retained earnings
The cumulative amount of net income earned by the company less the cumulative amount of dividends since the corporation was first organized. Also represents earned capital
Dividends in arrears
The cumulative unpaid amount that must be paid before any future common dividends can be paid.
Declaration date
The date on which the board of directors officially approves a dividend.dividends are not an expense
Record date
The date on which the corporation prepares the list of current stockholders shown on its records. Dividends can be paid only to the stockholders who own stock on that date.
Additional paid in capital
The decrease in retained earnings is greater than the increase in common stock so the excess market value over par value is
Current dividend preference
The feature of preferred stock that grants priority on preferred dividends over common dividends
Initial public offering
The first issuance of a company's stock to the public.
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 unpaid amounts also known as dividends in arrears must be paid before any common dividends can be paid.
Stock splits
The total number of authorized shares is increased by a specific amount . Revising the corporate charter to reduce the per share par value of all authorized shares.
Current and cumulative
The two most common dividend preferences are
Price earnings ratio
To determine the value investors place on a company's common stock. Measures how many time more than current years earnings investors are willing to pay for s company's stock.
Capital account
To record capital contributions and accumulate periodic income or loss
Repurchase of stock
To send a signal to investors that the company itself believes its own stock is worth securing. To obtain shares that can be reissued as payment for purchases of other companies, to obtain shares to reissue to employees as part of employee stock purchase plans. And reduce the number of outstanding share to increase per share measures of earnings and stock value.
Dividends on common stock
Total dividends declared-total dividends on preferred stock
A capital account and drawing account
What are the two owners equity accounts needed
Dividends can be paid if sufficient retained earnings and sufficient cash are available.
What are two fundamental requirements for the payment of a dividend?
Stock issuance
When a corporation distributes its shares to existing or new stockholders in exchange for cash
Sufficient retained earnings and sufficient cash
When deciding whether to declare a cash dividend. A company's board of directors considers possible tax law changes and
To lower the market price per share of stock. To demonstrate commitment to stockholders while conserving cash. To signal an expectation of significant future earnings.
Why would a company issue a stock dividend?
