Chapter 18 (Shareholder's Equity)

Early rule makers felt that per share market prices do not adjust in response to an increase in the

# of shares.

When determining the cost of treasury stock sold is similar to determining

COGS.

More Than one security issued for a single price

Debt cash, credit: Common stock, PICEP, preferred stock, paid in capital-excess of par, preferred.

What are the four classifications for shareholders equity?

Paid in capital, retained earnings, accumulated other comprehensive income, and treasury stock.

Limited Liability:

The owners are not personally liable for debts of the corporation. A corp is a separate legal entity. Shareholders is the single most important advantage of corps.

Whatever the reason shares are repurchased, a company has a choice of how to account for the buyback:

The shares can be formally retired. The shares can be called treasury stock.

When shares have a designated par value, that amount denotes stated capital and is credited to the stock account.

Then Proceeds in excess of this amount are credited to paid in capital-excess of par.

Cash dividends has

a declaration date, ex-dividend date, date of record, and payment date.

Payments made by a corporation to retire its own shares are viewed as

a distribution of corporation assets to shareholders.

A sufficient amount in retained earning permits

a dividend to be declared.

Property dividend is

a noncash dividend and is reported as the fair value.

Par value shares proceeds from shareholders investment is

allocated between stated capital and additional paid in capital.

Paid in capital:

amounts invested by shareholders.

Serial preferred stocks:

authorized board of directors to designate and issue, from time to time, each in one or more series.

Reacquired shares are equivalent to authorized

but unissued shares.

Conversely when cash is paid to retire to retire stock, the effect is to decrease both

cash and shareholders equity;the size of the company is literally reduced.

Class A stock is a form of

common stock that gives shareholder more voting rights than Class B shares. Class A may be up to five voting rights.

Shares issued for cash

debt cash, credit common stock and paid in capital-excess of par.

Shares issued for Noncash Consideration

debt property, plant, or equipment/ credit common stock and paid in capital excess of par.

Preferred shares are somewhat of a hybrid security between

equity and debt.

Under U.S. GAAP, preferred stock is normally reported as an

equity, but is reported as a debt with the dividends reported in the income statement as interest expense.

Share issue costs reduce the net cash proceeds

from selling the shares and thus paid in capital excess of par.

S corporations:

have characteristics of both regular corporations and partnerships.

Liquidating dividend

in unusual instances in which dividends exceeds the balance in RE, it is the excess amount.

Class B stocks

is usually given to management of the company. Class B may only be one voting right.

A reverse stock split occurs when a company decreases, rather than increases,

its outstanding shares.

Preferred stocks can either be cumulative or

noncumulative, normally they are cumulative. This means that if specified dividend is not paid for a given year, the unpaid dividends accumulate and must be made up in a later dividend year before any dividends are paid to common shareholders.

Comprehensive income:

provides a more expansive view of change in shareholders equity than traditional net income.

The motivation for stock splits is to

reduce the per share market price is to increase the stocks marketability by making it attractive to potential investors.

A credit balance in this account indicates a dollar amount of assets previously earned by the firm but not distributed as dividends, we refer to this debit balance in

retained earning as a deficit.

Ownership rights held by common shareholders, unless specifically withheld by agreement with shareholders are:

right to vote including election of corporation directors, each share represents one vote. The right to share profits when dividends are declared. The % of shares owned determines it. The right to share in the distribution of assets.

Water shares is

selling shares for less than par value. They received a great deal of attention and many pricey lawsuits.

Shareholders equity is classified under IFRS into two categories:

share capital and "reserves". The term reserves is considered misleading and thus discouraged under U.S. GAAP.

Purchase of treasury stock is a temporary reduction of

shareholders equity.

Under IFRS, most non mandatory redeemable preferred stock also is reported as a debt as well as

some preference shares that are not redeemable

A preferred stock is a class of ownership in a corp.

that has higher claim on its assets and earnings than common. These shares generally have a dividend that MUST be paid out before dividends to common shareholders. Shares normally dont carry voting rights.

To be a registered owner of shares on the date of record, an investor must purchase the shares before

the ex-dividend date, usually 2 business days before the date of record.

"Cost method" is the accounting for

treasury stock.

Shares repurchased and not retired are referred to as

treasury stock.