Chpt 10 Identity Set
Corporation Benefits
-limited liability -unlimited life -specialized management
Common stock Preferred stock Additional Paid-in Capital
3 types/accounts used to track Paid in Capital
Treasury Stock
A corporation's own stock that it has issued and later reacquired (ie. repurchased).
deficit
A debit balance in Retained Earnings will appear in stockholders' equity as __________ .
stock dividend
A distribution by a corporation of its own stock to its stockholders instead of paying them a "cash" dividend
The right to VOTE on certain major issues (ie. Voting Rights)
A non financial benefit a shareholder get from owning stock
accumulated other comprehensive income You said not on test but just know this one slide. See pic here: https://www.accountingcoach.com/wp-content/uploads/2013/10/[email protected]
A separate portion of stockholders' equity that reports certain gains and losses on hedges, foreign currency translations, and pension liabilities that were not part of net income shown on the income statement is __________ .
record date
A specific date on which the company will determine the registered owners of stock and, therefore, who will receive the dividend NO JOURNAL ENTRY IS MADE ON THIS DATE
warrant option
A stock _____________ and a stock______________ both the owner the right to buy or sell shares of stock at a set price within a defined period of time.
small stock dividend
A stock dividend where the new shares being issued are less than 25% of the total number of shares outstanding prior to the stock dividend.
large stock dividend
A stock dividend where the new shares being issued are more than 25% of the total number of shares outstanding prior to the stock dividend.
APIC = (Stock Price - Par Value) X number of shares sold
Additional Paid in Capital (APIC) equation for each sale
Additional Paid in Capital (APIC)
An equity account that reflects the difference at the time of issue between the par value and the issuance price of any new stock sold by a company.
Annual Divident = Dividend % X par value For example, if the preferred shares have a par value of $50 and a dividend rate of 6 percent, multiply $50 by 0.06 to find that the preferred share pays a $3 annual dividend.
Equation to calculate the annual dividend for preferred stock
Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends
Equation to determine end of period Retained Earnings
a corporation must restate its beginning retained earnings balance Example: Beg Ret Earnings. $xxxxxx Adjustment to error in prior period +-x End Ret Earnings. $xxxxxx
How are Prior Period adjustments reflected in a company's financial statements?
In case of bankruptcy and liquidation the bondholders have seniority over preferred stockholders in their claim to assets.
How is preferred stock different than bonds?
Dr Treasury Stock x,xxx Cr Cash x,xxx
Journal Entry to record Treasury Stock repurchased
State Laws to protect creditors from shareholders taking all the money out of a company so then the companys cant pay them back their money.
Name the main reason that Retained earnings may be restricted?
before note: that is why it is "preferred"
Preferred Stockholders have to be paid their dividends ______________________ (before/after) common stockholders
Participating Preferred Stock
Preferred stock that shares with common stockholders any dividends paid in excess of the percent stated on preferred stock.
Convertible Preferred Stock
Preferred stock with an option to exchange it for common stock at a specified rate.
stock certificate
Proof that a person owns a portion of the corporation. It shows the name of the company, the number of shares it represents, and the type of stock being issued.
=> Paid in Capital (ie C/S, P/S and APIC) and Retained Earnings Cole: cut and paste this link and study it briefly: https://www.accountingcoach.com/wp-content/uploads/2013/10/17X-table-02.png
Stockholder's equity is subdivided into two major sections: __________ and __________ . qqq
Stockholders' Equity = Assets - Liabilities
Stockholders' Equity equation
preemptive right
Stockholders' right to maintain their proportionate interest in a corporation with any additional shares issued. Each shareholder therefore has the right to buy additional shares in any future issue of the company's common stock before the shares are available to the general public Basically if I own 3% of a company and the company issues more shares they have to give me the right to buy 3% before offering them to other people. If I do I will still own 3% after the issue of the new shares. If I dont my share in the company will be DILUTED and I will own less. Watch video here=> https://www.investopedia.com/terms/p/preemptiveright.asp
1) Stock appreciation (Capital Gain) 2) Dividends 3) residual claim on assets
The 3 financial benefits a shareholder gets from owning stock
1) Paid-in Capital 2) Retained Earnings or deficit 3) Accumulated other comprehensive income 4) Treasury Stock
The 4 main components of Stockholders Equity
debit contra Note: Cole study this pic in light of the question: https://www.accountingcoach.com/wp-content/uploads/2013/10/[email protected]
The Treasury Stock account has a __________ (debit/credit) balance and is considered a __________ stockholders equity account qqq
Paid in Capital
The amount stockholders paid in to the corporation in exchange for shares of ownership.
Prior Period Adjustment
The correction of an error in previously issued financial statements. (Usually an error that effected he Earnings or Income statement)
corporation
The investors are only liable to the extent of their investment (ie. limited liability) in this type of entity. This means that they cannot be sued personally.
Dr Retained Earnings x,xxx Cr Dividends Payable x,xxx
The journal entry for when a dividend is declared
Dr Dividends Payable x,xxx Cr Cashx x,xxx
The journal entry for when a dividend is paid
stock warrant
These are given as an ''equity kicker,'' to make the bonds or preferred stock more attractive. They give the bond or preferred stockholders the legal right to purchase a shares of common stock at a set price within a defined period of time.
stock options
These are given to employees to buy a given number of shares of stock within a set time period. It allows startup/cash-poor companies to compete for top talent in the employee market.
1) Reduces the market value of the stock 2) Total number of shares increases (disclose only) 3) Par value of the shares decreases (disclose only)
What effect does a stock split have?
A STOCK SPLIT (This one is a 2 for 1 stock split)
What is the following and example of: a company which has 100 issued shares priced at $50 per share, has a market capitalization of $5000 = 100 × $50. If the company give to each stockhold 2 shares-for-every 1 share, there are now 200 shares of stock and each shareholder holds twice as many shares. The price of each share is adjusted to $25 = $5000 / 200.
Trick question as there is not one. Note: A stock split will not change the general ledger account balances and therefore will not change the dollar amounts reported in the stockholders' equity section of the balance sheet. (Although the number of shares will double, the total dollar amounts will not change.)
What is the journal entry for a stock split?
Dr Cash (30x$29) $870 Treasury Stock (30x$20) $600 APIC Treasury Stock $170
What is the journal entry to record a corporation selling 30 shares of its treasury stock for $29 per share that it originally repurchased for $20 a share.
to make shares seem more affordable to small investors even though the underlying value of the company has not changed. Example: Shares of company X are $1,000 per share. then Company does a stock split of 10 to 1 so Shares are now $100 per share The overall value of the company is the same so it really means nothing than just perception.
What is the primary reason that a company will do a stock split?
residual claim on assets
When a company goes bankrupt, the assets of the company are sold/liquidated, The fact that the Common Stockholders get last claim on the firm's assets after all the debts are paid is called a _____________ ________________ _____ _______________.
Preferred Stock
a nonvoting share of ownership in a corporation that pays a fixed dividend. (the dividend is shown a a % of par value) (Very similiar to bonds if you think about it: Companies offer corporate bonds and preferred stocks to investors as a way to raise money. Bonds offer investors regular interest payments, while preferred stocks pay regular set dividends.)
Cumulative dividend preference
a preferred stock feature that provides for the current stated dividends plus dividends in arrears before any dividends are paid to the common stockholders.
corporation
a separate legal entity that can be publicly held (ie. sold to the public) versus privately held
preferred stock
a type of stock that entitles the holder to a fixed dividend, whose dividend payment takes priority over that of common-stock dividends.
Par Value
a value assigned to a share of stock and printed on the stock certificate
treasury stock
amount of previously issued stock re-purchased reduction of stockholders' equity
Par Value
arbitrary (ie. randomly made up) amount that establishes a minimum price for the stock when it is first issued. It really has NO ECONOMIC SIGNIFICANCE. qqq
paid-in-capital
common stock preferred stock additional paid-in-capital
payment date
date dividend is actually paid to the stockholder of record
Dividends in arrears note: Means that these past due dividends MUST be paid before the common stockholders get their dividends. Not a liability though until DECLARED.
for preferred stock these are dividends on cumulative preferred stock that have not been declared/paid in prior years
Callable Preferred Stock
issuing corporation has the option to "call" or buy back issued shares at predetermined price at a specified time
Authorized shares
maximum number of shares of stock that a company can legally issue.
Issued Shares
number of shares that are currently held by stockholders. (ie. these have been sold to stockholders)
stockholders
people who own a corporation through shares of ownership
strike price (or exercise price)
price at which stock can be bought
dividends
pro-rata distribution to stockholders, usually quarterly
stock certificate
proof of ownership
Issued Shares
represent the total number of shares of stock that have been sold to stockholders
stockholders' equity
represents the owners' claims against the assets of a corporation
Current dividend preference
requires that dividends be paid to preferred stockholders before any dividends are paid to common stockholders
stock option
right to buy stock at a set price - compensation for employees and executives
retained earnings
the accumulated earnings (or losses) over the entire life of the corporation that have not been paid out as dividends
declaration date
the day on which the board of directors officially declares that a dividend will be paid. This is the date it is officially a liability for the corporation. qqq
Stock Split
the division of each single share of a company's stock into more than one share
articles of incorporation
the document filed with a state government to establish the existence of a new corporation. qqq
authorized shares
the maximum number of shares allowed to be sold
Common Stock
the most basic form of corporate ownership which includes giving owners voting rights on major issues. If a company only issues one type of stock it would be this one. qqq
outstanding shares
the number of issued shares actually in the hands of stockholders
issued shares
the number of shares actually sold to stockholders
outstanding shares
the number of shares issued less the number of shares held as treasury stock
Restricted Retained Earnings (note: these are also referred to as "Appropriated Retained Earnings")
the portion of Retained earnings not available for dividends because of legal limitations.
corporation
this type of entity is given the same rights as a person under the law
corporation
type of entity that is organized under the laws of a particular state.