Chapter 11 Reporting & Analyzing Stockholders Equity pt.2

Return on common stockholders' equity

(net income - preferred dividends) / average common stockholders' equity -ratio shows how many dollars of net income a company earned for each dollar of common stockholders equity

What are the three important dates when dividends is declared?

-date of record liability for dividend (declaration) -date of no entry required (record date) -date of record payment of cash to stockholders

Why is preferred stock preferred? What priorities does preferred stock have?

-this type of stock is preferred due to its preference over common stock holders -the priorities that preferred stock has is dividends (first to receive) & assets in the event of liquidation (they sometimes don't have voting rights)

Why do corporations purchase their stock back?

-to reissue shares to officers and employees under bonus and stock compensation plans -to increase trading of the company's -to have additional shares available for use in acquiring other companies -to increase earnings per share -to eliminate hostile shareholders or takeover

On June 1, Forrest Inc. issues 3,000 shares of no-par preferred stock at a cash price of $107 per share.

Cash DR 321,000 Preferred Stock CR 321,000 (3,000x107=321,000)

During its first year of operations, Mona Corporation had this transaction pertaining to its preferred stock. July 1 issued 60,000 shares for cash at $106 per share. Journalize the transactions, assuming that the preferred stock is no-par with a stated value of $1 per share

Cash DR 6,360,000 (60,000x106) Preferred Stock CR 60,000 (60,000x1)-stated value Paid in Capital in Excess of Stated Value-Preferred Stock CR 6,300,000

Layes Inc. issues 8,000 shares of $100 par value preferred stock for cash at $106 per share record entry as follows (preferred stock, w/par value)

Cash DR 848,000 (8,000x106) Preferred Stock CR 800,000 (8,000x100) Paid in Capital in Excess of Par Value- Preferred Stock CR 48,000 (difference between cash & preferred)

Recording Declaration of Dividends: Basse Corporation has 7,000 shares of common stock outstanding. It declares a $1 per share cash dividend on November 1 to stockholders of record on December 1. The dividend is paid on December 31, prepare the entry on the appropriate date to record the declaration

DR Cash Dividend 7,000 CR Dividends payable 7,000 (7,000x1)

Recording Payment of Dividends: Basse Corporation has 7,000 shares of common stock outstanding. It declares a $1 per share cash dividend on November 1 to stockholders of record on December 1. The dividend is paid on December 31, prepare the entry on the appropriate date to record the payment of dividend

DR Dividend Payable 7,000 CR Cash 7,000 (7,000x1)

Sagan Co. had this transaction during the current period. Nov. 28 2,000 shares of treasury stock for $9,000. (given value/if it is not given find treasury stock by multiplying shares and amount per share)

Treasury Stock DR 9,000 Cash CR 9,000

What is preferred stock?

a type of stock that gives its holder preference over common stockholders in terms of dividends and claims on assets

Stockholders Equity

also referred to as shareholders' equity, is the remaining amount of assets available to shareholders after all liabilities have been paid. It is calculated either as a firm's total assets less its total liabilities or alternatively as the sum of share capital and retained earnings less treasury shares

What accounts generate stockholders equity?

common stock, preferred stock, paid-in capital, retained earnings, and treasury stock

What is treasury stock?

corporations own stock that it has been reacquired from shareholders, but not retired

Dividends

distribution of earnings to stockholders on proportional ownership basis

Cumulative Preferred Stock

holders of preferred stock must be paid their annual dividends plus any dividends in arrears before common stockholders receive dividends

Non-Cumulative Preferred Stock

holders of preferred stock that will not be paid for dividends in arrears (owed for previous years)

How does stock dividends effect stockholders equity?

it results in a decrease in retained earnings and increase in paid in capital and no change to total equity

Earnings Per Share

net income - preferred dividends/ average common shares outstanding -ratio shows how much net income a company earned for each share of common stock outstanding

what goes into retained earnings?

the net income that a company retains for the use in the business, less any dividends paid

How does treasury stock effect stockholders equity?

when a company buys stock back from its investors, it has the effect of reducing the company's total equity. As a result, treasury stock is a contra-equity account, its balance counts against the total value of the company's equity