ACG modules 10-11
Why does a corporation repurchase its stock 4 reasons
(1) send a sign to other that stock is worthy (2) obtain shares that can be reissued as payment for purchases of other companies (3)obtain shares to reissue to employees as part of employee stock purchase plans (4) reduce the number of outstanding shares to increase per-share measure of earnings and stock value
why would a company want to issue a stock dividend
(1)To increase the number of shares of stock outstanding (2)To reduce the market price per share of stock (3)To transfer some of the corporation's retained earnings to paid-in capital (4)To minimize distributing the corporation's cash to its stockholders
what are the four main elements to the stockholders equity on the balance sheet
1. Contributed capital 2. retained earnings 3.treasury stock (neg) 4.accumulated other comprehensive (Loss/neg)
Advantages of Equity Financing
1. Equity does not have to be repaid 2. Dividends are optional
advantages of debt financing
1. Interest on debt is tax deductible 2. Debt does not change stockholder control
Interest formula
Interest=(Principle)(Rate)(Time)
What is a discount bond?
Bonds that sell for less than face value. When market rate rises, prices drop
Who is responsible for FICA
Both the employee and company. Split 50/50 called matching contribution
Bonds
Certificates of debt that carry a promise to buy back the bonds at a higher price
John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.20; Medicare $8.70; Federal income tax $58; and State income tax $10. Assuming that John gets paid in cash and payroll deductions will be paid the following month, how would ABC record the payroll deductions?
Current liabilities increase $113.90.
Journal entry to record Payroll Tax Expense
DEBIT Salaries and wage expense CREDIT withheld income tax expense, FICA payable, Charitable contributions payable and cash(the salaries-expense/paybles)
what is the journal entry for the reissuing of treasury stock
Debit cash (stock*share price) Credit Treasury stock(stock*repurchase price) additional paid in capital(cash-treasury) If the cash is less, debit additional paid in cap
what is the journal entry for the repurchase of treasury stock
Debit treasury stock and credit cash
what are the three important dates with cash dividends
Declaration date, record date, payment date
A distribution of a company's accumulated prior earnings is a(n) ______.
Dividend
What is the employee responsible for when paying for accrued liabilities?
Federal Income tax
How does preferred stock differ from common stock?
Preferred stock gives its owners certain advantages over common stock. It receives dividend preference over common stockholders. It also receives assets before common stockholders if the corporation liquidates.
How does a stock dividend effect the financial statements
Regardless of size of it only affects the within stockholders equity, not the total stockholders equity
How much a employer has to burden
Salary and wages expense + payroll tax expense
Sales Tax Payable
Sales tax collected from customers by the seller, representing current liabilities payable to the government
Notes Payable
Short-term or long-term liabilities that a business promises to repay by a certain date.
Which of the following are not required payroll deductions from an employees' gross earnings?
State unemployment tax (SUTA) Charitable contributions Federal unemployment tax (FUTA)
State unemployment tax (SUTA) and Federal unemployment tax (FUTA)
State unemployment tax is paid by the employer, not the employee, and thus is not deducted from employees' gross pay
The entry to record the issuance of 100 bonds at their $1,000 face value causes ______.
The entry includes a debit to Cash (+A) and credit to Bonds Payable (+L) for $100,000 (100 x $1,000 x 100%).
authorized shares
The maximum number of shares a corporation may issue
What is the face value of a bond?
The payment made when the bond matures; used to compute interest payments
What is the stated interest rate? and what is it also called
The rate stated on the face of the bond that is used to compute interest payments. Also called the coupon rate or contract rate.
what are the benefits of common stock
Voting rights, dividends, residual claim, preemptive rights
The discount on a bonds payable becomes ______.
additional interest expense over the life of the bonds
Contributed capital of $1,000,000 represents ______.
amount stockholders have invested in exchange for stock
Current Liabilities
liabilities due within a short time, usually within a year. Deferred Rev
Advantages of a corporation
limited liability, ability to raise capital and transfer ownership
when does the company have a liability to pay dividends?
once the dividend is declared
If you own stock in a corporation that goes bankrupt, you ______.
only lose what you paid for the stock
current liabilities for your employer
payroll deductions create ....?
The entry to record the initial borrowing of cash by issuing a promissory note causes a(n) ______
increase in assets increase in liabilities
why would a company issue a stock dividend
1. To lower the market price per share of stock 2. To demonstrate commitment to stockholders while conserving cash during difficult times 3. To signal an expectation of significant future earnings
What are the three key elements of a bond
1. maturity date 2. face value 3. stated interest rate
A bond with an issue price of $10,100 and a face value of $10,000 was issued at ______.
101.000
What is a premium bond?
A bond that sells for more than face value. When market value rate falls, price goes up
Treasury stock
A corporation's own stock that it has reacquired
what type of account is treasury stock and its normal balance and is it perm or temp
contra equity account NOT asset dr permanent account
Journal entry for note payment
debit Notes payable credit cash
Journal entry for sales tax
debit cash 1050 credit sales revenue 1000 credit sales tax payable 50
Journal entry for establishing a notes payable
debit cash credit notes payable
preferred stock journal entry
debit cash(issue* $per share, credit preferred stock(issue*par value) and additional paid in capital(difference of cash and add)
what is the journal entry for issuing stock with par value
debit cash(issue* amount of issuance) credit common stock(issue shares* par) additional paid in cap (cash-common stock)
Journal entry for payment date
debit dividends payable credit cash
the journal entry for declaration date
debit dividends, credit dividends payable
Journal entry to record accrued interest
debit interest expense, credit interest payable
Journal entry to record interest payment
debit interest payable(the accrued) and interest expense(remaining) and credit cash for full amount
dividends in arrears
dividends on cumulative preferred stock that have not been declared in prior years
Accruing a liability always involves recording both a(n)______ and a liability.
expense
A bond's maturity date is the date on which the ______.
face value of the bonds are paid
The stated rate ______.
remains the same throughout the life of the bonds
issued shares
shares of stock that have been distributed by the corporation outstanding+treasury
par value
small amount of value per share of capital stock
what are stock spilts and why
spilt the shares you already have and it does not effect common stock, add., and total stockholder. Simply reduces the stock price to seem more affordable
preffered stock
stock that entitles the holder to a fixed dividend, whose payment takes priority over that of common-stock dividend, and no voting rights
What is the maturity date?
the exact date the issuer of a bond must pay the principal to the bondholder
Who determines the issue price for the bond and how
the market investors determine the issue price and will base it of how a company keeps it promise. Higher ratings=greater issue price
outstanding shares
the number of shares issued minus the number of shares held as treasury stock
Sales Tax payable how to solve
the sales rev amount *percent sales tax (1,000*5%)
