acct chp 13

statement of stockholders equity

The statement of stockholders' equity is another option for reporting the changes in stockholders' equity of a corporation. It reports the changes in all stockholders' equity accounts.

why issue stock dividends?

A company issues stock dividends in order to: -Continue dividends but conserve cash -Reduce the market price per share of its stock -Reward investors

retirement of stock

A corporation may retire its stock by canceling the stock certificates. Retired stock cannot be reissued. To repurchase previously issued stock for retirement, we debit the stock accounts and credit Cash. -This removes the retired stock from the company's books. -It also reduces total assets and total stockholders' equity.

stockholders equity

A corporation's equity is called stockholders' equity. The two basic sources of stockholders' equity are: -Paid-in capital represents amounts received from stockholders for stock. -Retained earnings is equity earned by profitable operations that is not distributed to stockholders.

HOW ARE DIVIDENDS AND STOCK SPLITS ACCOUNTED FOR?

A profitable corporation may make distributions to stockholders in the form of dividends. Dividends can be paid in the form of cash, stock, or other property. Legal capital refers to the portion of stockholders' equity that cannot be used for dividends.

stockholders rights

A stockholder has four basic rights: 1. Vote―Each share of basic ownership in the corporation carries one vote. 2. Dividends―Stockholders receive a proportionate part of any dividend declared and paid. 3. Liquidation―Stockholders receive their proportionate share of any assets remaining after liquidation. 4. Preemptive right―Stockholders have a right to maintain their proportional ownership.

Corporations issue different classes of stock:

Common stock represents basic ownership. Preferred stock gives owners certain advantages over common stock. Stock may carry a par value or may be no-par stock. Stated value stock is no-par stock that has been assigned an amount similar to par value.

HOW IS THE ISSUANCE OF STOCK ACCOUNTED FOR?

Companies raise capital by issuing stock. A company can sell its stock directly to stockholders, or it can use the services of an underwriter. Stocks of public companies are bought and sold on a stock exchange, such as the New York Stock Exchange (NYSE) or NASDAQ Stock Market. The issue price is the amount a corporation receives from issuing stock.

HOW IS THE COMPLETE CORPORATE INCOME STATEMENT PREPARED?

Continuing operations: -These operations should continue from period to period. -Income from continuing operations helps investors make predictions about future earnings. Discontinued operations: -These gains and losses occur when a company sells or disposes of an identifiable division. -They are reported separately from continuing operations because this type of disposal does not occur frequently.

Preferred stock can be:

Cumulative preferred stock Noncumulative preferred stock

sale of treasury stock example

How many common shares are outstanding on April 4? The 23,000 common shares previously issued minus 300 treasury shares equals 22,700 outstanding common shares.

prior-period adjustments

Occasionally a company may make an accounting error as a result of mathematical mistakes or other errors not discovered until the following period. Corrections to Retained Earnings for errors of an earlier period are called prior-period adjustments.

Noncumulative preferred stock

Preferred stock whose owners do not receive passed dividends

outstanding stock

Stock held by the stockholders is called

stock certificates

Stockholders are issued

treasury stock basics

The basics of accounting for treasury stock: -The Treasury Stock account has a normal debit balance. Treasury Stock is a contra equity account. -Treasury stock is recorded at cost, without reference to par value. -The Treasury Stock account is reported beneath Retained Earnings on the balance sheet as a reduction to equity.

Declaring and Paying Dividends―Preferred Stock

The cash dividend rate on preferred stock is often expressed as a percentage of the preferred stock par value, such as 6%. Sometimes, cash dividends on preferred stock are expressed as a flat dollar amount per share, such as $3 per share. Greg's Games, Inc. has 1,000 outstanding shares of 6%, $50 par value preferred stock. The dividend is computed as follows: preferred dividend = outstanding shars x par value x preferred dividend rate =1000 x 50 x 6% =3000

authorized stock

The maximum number of shares of stock a corporation may issue is I

HOW IS EQUITY REPORTED FOR A CORPORATION?

The statement of retained earnings reports how the company's retained earnings balance changed from the beginning of the period to the end of the period. Companies can report a negative amount in retained earnings. This is called a deficit.

recording stock dividends

There are three dates for a stock dividend: -Declaration date -Record date -Distribution date

characteristics of a corporation

Unique characteristics of corporations: -Separate legal entity -Number of owners -no personal liability of the owner(s) -Lack of mutual agency -Indefinite life -Taxation -Capital accumulation

corporation

a business organized under state law that is a separate legal entity. Corporations dominate business activity in the United States. Most well-known companies are corporations.

stock dividends

a distribution of a corporation's own stock to its shareholders. Stock dividends have the following characteristics: -They affect only stockholders' equity accounts. -They have no effect on total stockholders' equity. -They have no effect on assets or liabilities

stock split

a stock split is fundamentally different from a stock dividend. A stock split increases the number of issued and outstanding shares of stock. A stock split decreases the par value and the market value per share, whereas stock dividends do not affect par value per share. a stock split, like any other stock issuance, cannot involve issuing more shares of stock than authorized in the corporate charter

memorandum entry

an entry in the journal that notes a significant event but has no debit or credit amount.

appropriations of retained earnings

are retained earnings restrictions recorded by journal entries. Cash dividends and treasury stock purchases require a cash payment. Banks often require a company to maintain a minimum level of stockholders' equity.

three dividend dates are relevent

declaration date-The board of directors announces the intention to pay the dividend, and a liability is created. date of record-This is the date the corporation records the stockholders that will receive dividend checks. payment date-This is the date the dividend is paid to the stockholders.

issued stock

has been issued by the corporation.

treasury stock

is a company's stock that it has previously issued and later reacquired. Companies purchase treasury stock to: -Increase net assets by buying low and selling high -Support the company's stock price -Avoid a takeover -Reward valued employees with stock

A preferred stock dividend in arrears

is a dividend that has not been paid for the year.

large stock dividend

is greater than 20% to 25% of issued and outstanding stock.

small stock dividend

is less than 20% to 25% of issued and outstanding stock.

capital stock

represents a stockholder's ownership.

earnings per share (EPS)

the most widely used of all business statistics. EPS reports the amount of net income (loss) for each share of the company's outstanding common stock. Earnings per share is calculated as net income minus preferred dividends divided by the weighted average number of common shares outstanding.

cummulative preferred stock

―Preferred stock whose owners must receive all dividends in arrears plus the current year dividends before the corporation pays dividends to the common stockholders