Beruflich Dokumente
Kultur Dokumente
11
Corporations:
Organization, Stock
Transactions, Dividends, and
Retained Earnings
Financial Accounting,
Seventh Edition
Slide
13-1
CHAPTER 11 - Part 1
Major Characteristics of a corporation
Forming a corporation
Stockholders Rights
Slide
13-2
Learning Objectives
1.
2.
3.
4.
5.
6.
7.
Slide
13-3
Classified by Ownership
Not-for-Profit
Publicly held
For Profit
Privately held
Hopelink
Susan B Komen
Bill & Melinda
Gates Foundation
Slide
13-4
and
Wendys
Ford Motor Company
Coke
Amazon
Mars (the
Snickers Co.
Advantages
Continuous Life
Corporate Management
Government Regulations
Disadvantages
Additional Taxes
Slide
13-5
Stockholders are
separate from the
company. The
word
______________________________________________
corporation
comes from the
The Stockholders
root work
corpus or body.
A corporation is a
separate legal
entity.
Slide
13-6
Stockholder are
at risk ONLY to
the extent of their
investment. In
other words, a
stockholder can
either make
money on his/her
______________________________________________
stock (if the price
The Stockholders $$$$$$$$$$$$$$$$$$$ rises) or.worst
case scenario,
LOSE IT ALL.
But no more.
BUT: The stockholders personal assets are
NOT at risk.
Slide
13-7
Slide
13-8
Slide
13-9
Continuous LifeADV
A corporations life is not limited by the lifetime of its owners
The corporate
charter (read ahead
for forming a
corporation and
writing a charter)
can limit its life,
but most
corporations live on
indefinitely, not
limited by its
owners lives.
Slide
13-10
disadvantage.
Slide
13-11
Characteristics of a Corporation
Stockholders
Illustration 11-1
Corporation organization
chart
Chairman and
Board of
Directors
President and
Chief Executive
Officer
General
Counsel and
Secretary
Vice President
Marketing
Treasurer
Slide
13-12
Vice President
Finance/Chief
Financial Officer
Vice President
Operations
Vice President
Human
Resources
Controller
ASE)
Slide
13-13
Slide
13-14
Slide
13-15
Forming a Corporation
Initial Steps:
File application with the Secretary of State.
State grants charter.
Corporation develops by-laws.
Companies generally incorporate in a state whose laws
are favorable to the corporate form of business
(Delaware, New Jersey).
Slide
13-16
Stockholders Rights
Stockholders have the right to:
Illustration 11-3
Slide
13-17
Stockholders Rights
Stockholders have the right to:
Illustration 11-3
Illustration 11-3
Slide
13-19
Illustration 11-4
Class
Class A
Class A
COMMON STOCK
COMMON STOCK
PAR VALUE
$1 PER SHARE
PAR VALUE
$1 PER SHARE
Name of corporation
Stockholders name
Stock Certificate
Signature of
corporate official
Slide
13-20
Shares
Practice
Practice: Do Self Study Questions: 1,2,3
Slide
13-21
CHAPTER 11 - Part 2
Common Stock
Treasury Stock
Preferred Stock
Slide
13-22
Ultimately,
it is the
market
demand that
will set the
current
selling
price.
and dividends.
Factors beyond a companys control, may
cause day-to-day fluctuations in market
Slide
13-25
prices.
After the
Company has
sold a share of
stock, any
subsequent sale
(at profit or
loss), does NOT
impact the
company.
$40.
There is a $10 profit.
Chocolate!
First, answer this on YOUR
OWN and then go to next
slide
Slide
13-27
Slide
13-28
Slide
13-29
Capital
Remember the Accounting Equation?
Assets = Liabilities + Stockholders Equity
Assets = The Companys Resources
Liabilities & Stockholders Equity = How the Company
DEBT
EQUITY (owners)
Slide
13-30
Preferred
Stock
PIC, in
Excess of
Par Value,
Common
Stock
PIC, in
Excess of
Par Value,
Preferred
Stock
EARNED CAPITAL
Retained
Earnings
Slide
13-31
Slide
13-32
a.
b.
Slide
13-33
a.
Cash
1,000
Slide
13-34
Cash
1,000
5,000
1,000
4,000
Slide
13-35
Slide
13-36
40,000
25,000
15,000
40,000
40,000
SO 2 Record the issuance of common stock.
Slide
13-39
Slide
13-40
5,000
4,000
1,000
Slide
13-41
Slide
13-42
80,000
50,000
30,000
Slide
13-43
TREASURY STOCK
PAID IN CAPITAL
Common
Stock
PIC, in
Excess of Par
Value,
Common
Stock
Preferred
Stock
PIC, in
Excess of Par
Value,
Preferred
Stock
EARNED CAPITAL
Retained
Earnings
Slide
13-44
* Debit T-Stock at Cost (note-there are alternative ways to record T-Stock, but
not learned until more advanced courses)
Slide
13-46
32,000
32,000
Authorized
Issued
Outstanding
Treasury Stock
Authorized = 1,000,000
Issued = 400,000
Outstanding = 385,000
Treasury Stock = 15,000
385,000
Slide
13-50
Authorized = 1,000,000
Issued = 400,000
Outstanding = 385,000
Treasury Stock = 15,000
385,000
Slide
13-51
Authorized = 1,000,000
Issued = 400,000
Outstanding = 385,000
Treasury Stock = 15,000
Unissued = 600,000
385,000
Slide
13-53
Slide
13-54
Above
Cost
Cash
10,000
8,000
2,000
Below
Cost
Cash
5,600
800
6,400
Mead uses Paid-in Capital from Treasury Stock, if available, for the
difference between cost and resale price of the shares.
Slide
13-56
Below
Cost
Dec. 1
Cash
15,400
1,200
Retained earnings
1,000
Slide
13-57
Limited
to
balance
on hand
17,600
Slide
13-58
Preferred Stock
Features often associated with preferred stock.
1.
Preference as to dividends.
2.
3.
Nonvoting.
Slide
13-59
Preferred Stock
Illustration: Stine Corporation issues 10,000 shares of
$10 par value preferred stock for $12 cash per share.
Journalize the issuance of the preferred stock.
Note this Journal
Cash
Entries in your
Course Pack
120,000
100,000
20,000
CHAPTER 11 - Part 3
Cash Dividends
Stock Dividends
Stock Splits
Retained Earnings
Slide
13-61
Preferred Stock
Dividend Preferences
Right to receive dividends before common
stockholders.
Per share dividend amount is stated as a percentage
of the preferred stocks par value or as a specified
amount.
Cumulative dividend holders of preferred stock
must be paid their annual dividend plus any dividends
in arrears before common stockholders receive
dividends.
Slide
13-62
Slide
13-63
Dividends
A distribution of cash or stock to stockholders on a
pro rata (proportional) basis.
Types of Dividends:
1.
Cash dividends.
2. Property dividends.
3. Scrip (note)
4. Stock dividends.
Slide
13-64
Liability Recorded
Liability paid
Slide
13-65
Cash Dividends
Cash Dividends
For a corporation to pay a cash dividend, it must have:
1. Retained earnings - Payment of cash dividends from
retained earnings is legal in all states.
2. Adequate cash.
3. A declaration of dividends by the Board of Directors.
Slide
13-66
Cash Dividends
Illustration: On Dec. 1, the directors of Media General
declare a 50 per share cash dividend on 100,000 shares of
$10 par value common stock. The dividend is payable on Jan.
20 to shareholders of record on Dec. 22?
December 1 (Declaration Date)
Cash Dividends
Dividends payable
December 22 (Date of Record)
50,000
50,000
No entry
50,000
50,000
Cash Dividends
Allocating Cash Dividends Between Preferred
and Common Stock
Holders of cumulative preferred stock must be paid
any unpaid prior-year dividends before common
stockholders receive dividends.
Slide
13-68
Slide
13-69
Cash Dividends
6,000
Dividends payable
6,000
Cash Dividends
Illustration: At December 31, 2012, IBR declares a $50,000
cash dividend. Show the allocation of dividends to each class
of stock.
2011
Dividends declared
6,000
Dividends in arrears
Allocation to Preferred
Remainder to Common
6,000
$
2012
$ 50,000
2,000 **
8,000 *
$ 40,000
Apex should report dividends in arrears in its 19x3 financial statements as a (an)
a. Accrued Liability of $15,000
b. Disclosure of $15,000
c. Accrued liability of $20,000
d. Disclosure of $20,000
Slide
13-72
YEAR
DIVIDENDs
PAID
19X1
19X2
19X3
15,000
15,000
BALANCE IN
ARREARS
0
Slide
13-73
Stock Dividends
Stock Dividends
Illustration 11-14
Stock Dividends
Stock Dividends
Reasons why corporations issue stock
dividends:
1.
2.
3.
Stock Dividends
Size of Stock Dividends
Small stock dividend (less than 2025% of the
corporations issued stock, recorded at fair
market value) *
Large stock dividend (greater than 2025% of
issued stock, recorded at par value)
* This accounting is based on the assumption that a small stock
dividend will have little effect on the market price of the
outstanding shares.
Slide
13-76
Stock Dividends
Illustration: Medland Corp. has 50,000 shares issued and
outstanding. The par value is $10 per share and market
value is $15 per share.
10% stock dividend is declared
Stock Dividend
(50,000 x 10% x $15)
Common stock dividends distributable
Paid-in capital in excess of par value
75,000
50,000
25,000
Stock issued
50,000
50,000
Stock Dividends
Stockholders Equity with Dividends Distributable
Illustration 11-15
Medland Corporation
Balance Sheet (partial)
Stockholders' equity
Paid-in capital
Common stock
Common stock dividends distributable
Total stockholders' equity
Slide
13-78
$ 500,000
50,000
$ 550,000
Stock Dividends
Effects of Stock Dividends
Illustration 11-16
Stock Dividends
Question
Which of the following statements about small stock
dividends is true?
a. A debit to Retained Earnings for the par value of
the shares issued should be made.
b. A small stock dividend decreases total stockholders
equity.
c. Market value per share should be assigned to the
dividend shares.
d. A small stock dividend ordinarily will have no effect
on book value per share of stock.
Slide
13-80
Stock Dividends
Question
Which of the following statements about small stock
dividends is true?
a. A debit to Retained Earnings for the par value of
the shares issued should be made.
b. A small stock dividend decreases total stockholders
equity.
c. Market value per share should be assigned to the
dividend shares.
d. A small stock dividend ordinarily will have no effect
on book value per share of stock.
Slide
13-81
Stock Dividends
Question
In the stockholders equity section, Common Stock
Dividends Distributable is reported as a(n):
a. deduction from total paid-in capital and retained
earnings.
b. current liability.
c. deduction from retained earnings.
Slide
13-82
Stock Dividends
Question
In the stockholders equity section, Common Stock
Dividends Distributable is reported as a(n):
a. deduction from total paid-in capital and retained
earnings.
b. current liability.
c. deduction from retained earnings.
Slide
13-83
Stock Splits
Stock Split
Reduces the market value of shares.
No entry recorded for a stock split.
Decrease par value and increase number of
shares.
Slide
13-84
Stock Splits
Illustration: Assume Medland Corporation splits its
50,000 shares of common stock on a 2-for-1 basis.
Before Split:
$500,000
0
$500,000
Retained Earnings
$300,000
$800,000
Outstanding Shares
50,000
Stock Splits
Illustration: Assume Medland Corporation splits its
50,000 shares of common stock on a 2-for-1 basis.
AFTER Split:
$500,000
0
$500,000
Retained Earnings
$300,000
$800,000
Outstanding Shares
100,000
Stock Splits
So what is the value in a stock split???
Slide
13-88
Before:
Outstanding Shares of 10,000 at a $6 par value
$60,000
After:
Outstanding Shares of 15,000 at a $4 par value
$60,000
Retained Earnings
Retained earnings is net income that a company
retains for use in the business.
a deficit.
Slide
13-89
Slide
13-90
mathematical mistakes
Slide
13-91
1,050,000
360,000
(300,000)
1,110,000
Before issuing the report for the year ended December 31, 2011, you discover a
$50,000 error (net of tax) that caused the 2010 inventory to be overstated
(overstated inventory caused COGS to be lower and thus net income to be
higher in 2010. Would this discovery have any impact on the reporting of the
Statement of Retained Earnings for 2011?
Slide
13-92
Slide
13-93
1,050,000
(50,000)
1,000,000
360,000
(300,000)
1,060,000
Slide
13-94
Slide
13-95
Question
All but one of the following is reported in a retained
earnings statement. The exception is:
a. cash and stock dividends.
Slide
13-96
Illustration 11-26
Slide
13-97
SO 7
Slide
13-98
Illustration 11-28
Slide
13-99
Solution on
notes page
Home-Equity Loans
Home-equity loans are now difficult to get. The reasons are that
banks are not making the loans, and sinking home prices give
homeowners less equity to borrow against.
Four major reasons why many individuals employ home-equity loans
are: (1) to invest, (2) to get a tax deduction, (3) to defer other
debt, or (4) to buy from a wish list.
Slide
13-100
End of Chapter 11
Slide
13-101
Prob 11-1B
(a) Jan. 10
Mar. 1
Apr. 1
May 1
Aug. 1
Sept. 1
Slide
13-102
320,000
240,000
80,000
525,000
500,000
25,000
85,000
72,000
13,000
360,000
240,000
120,000
40,000
30,000
10,000
50,000
30,000
20,000
Prob 11-1B
Slide
13-103
$ 600,000
612,000
1,212,000
$ 34,000
243,000
277,000
$1,489,000
Prob 11-2B
(a) Mar. 1
June 1
Sept. 1
Dec. 1
31
Slide
13-104
40,000
40,000
12,000
8,000
4,000
20,000
16,000
4,000
6,000
2,000
8,000
40,000
40,000
Prob 11-2B
Slide
13-105
$500,000
$200,000
6,000
206,000
706,000
140,000
846,000
(8,000)
$838,000
Prob 11-3B
(a) Feb. 1
Apr. 14
Sept. 3
Nov. 10
Dec. 31
Slide
13-106
Cash
Common Stock (25,000 X $1)
Paid-in Capital in Excess of
Stated ValueCommon
Stock ($100,000 $25,000)
Cash
Treasury StockCommon
(6,000 X $4)
Paid-in Capital from Treasury
Stock-Common
($33,000 $24,000)
Patent
Common Stock (5,000 X $1)
Paid-in Capital in Excess of
Stated ValueCommon
Stock ($30,000 $5,000)
Treasury StockCommon
Cash
Income Summary
Retained Earnings
100,000
25,000
75,000
33,000
24,000
9,000
30,000
5,000
25,000
6,000
6,000
452,000
452,000
Prob 11-3B
$ 400,000
1,030,000
1,430,000
$ 100,000
1,550,000
9,000
1,659,000
3,089,000
2,268,000
5,357,000
Slide
13-107
(22,000)
$5,335,000
Apex should report dividends in arrears in its 19x3 financial statements as a (an)
a. Accrued Liability of $15,000
b. Disclosure of $15,000
c. Accrued liability of $20,000
d. Disclosure of $20,000
Slide
13-108
YEAR
DIVIDENDs
PAID
19X1
19X2
19X3
15,000
15,000
15,000
15,000
0
10,000
BALANCE IN
ARREARS
0
15,000
25,000