Beruflich Dokumente
Kultur Dokumente
11-1
Chapter
11-2
Study
Study Objectives
Objectives
1.
2.
3.
4.
5.
6.
7.
8.
9.
Chapter
11-3
Reporting
Reporting and
and Analyzing
Analyzing Stockholders
StockholdersEquity
Equity
The
Corporate
Form of
Organization
Characteristics
Formation
Stockholder
rights
Chapter
11-4
Stock Issue
Consideration
Authorized
stock
Issuance
Par and nopar value
Accounting for
common stock
issues
Accounting
for Treasury
Stock
Purchase of
treasury stock
Preferred
Stock
Dividend
preferences
Liquidation
preference
Dividends
and Retained
Earnings
Cash dividends
Stock
dividends
Stock splits
Retained
earnings
restrictions
Financial
Statement
Presentation
and
Corporate
Performance
Balance sheet
Statement of
cash flows
Dividend
record
Earnings
performance
Debt vs. equity
decision
The
The Corporate
Corporate Form
Form of
of Organization
Organization
An entity separate and distinct from its owners.
Classified by Purpose
Not-for-Profit
Publicly held
For Profit
Privately held
Salvation Army
American Cancer
Society
Gates Foundation
Chapter
11-5
Classified by Ownership
Nike
General Motors
IBM
General Electric
Cargill Inc.
The
The Corporate
Corporate Form
Form of
of Organization
Organization
Characteristics of a Corporation
Separate Legal Existence
Limited Liability of Stockholders
Transferable Ownership Rights
Ability to Acquire Capital
Advantages
Continuous Life
Corporate Management
Government Regulations
Disadvantages
Additional Taxes
Chapter
11-6
The
The Corporate
Corporate Form
Form of
of Organization
Organization
Characteristics of a Corporation
Separate Legal Existence
Limited Liability of Stockholders
Transferable Ownership Rights
Ability to Acquire Capital
Corporation acts
under its own name
rather than in the
name of its
stockholders.
Continuous Life
Government Regulations
Additional Taxes
Corporate Management
Chapter
11-7
The
The Corporate
Corporate Form
Form of
of Organization
Organization
Characteristics of a Corporation
Separate Legal Existence
Limited Liability of Stockholders
Transferable Ownership Rights
Limited to their
investment.
The
The Corporate
Corporate Form
Form of
of Organization
Organization
Characteristics of a Corporation
Separate Legal Existence
Limited Liability of Stockholders
Transferable Ownership Rights
Ability to Acquire Capital
Shareholders may
sell their stock.
Continuous Life
Government Regulations
Additional Taxes
Corporate Management
Chapter
11-9
The
The Corporate
Corporate Form
Form of
of Organization
Organization
Characteristics of a Corporation
Separate Legal Existence
Limited Liability of Stockholders
Transferable Ownership Rights
Ability to Acquire Capital
Continuous Life
Corporation can
obtain capital
through the
issuance of stock.
Government Regulations
Additional Taxes
Corporate Management
Chapter
11-10
The
The Corporate
Corporate Form
Form of
of Organization
Organization
Characteristics of a Corporation
Separate Legal Existence
Limited Liability of Stockholders
Transferable Ownership Rights
Ability to Acquire Capital
Continuous Life
Government Regulations
Additional Taxes
Corporate Management
Chapter
11-11
Continuance as a
going concern is not
affected by the
withdrawal, death,
or incapacity of a
stockholder,
employee, or
officer.
The
The Corporate
Corporate Form
Form of
of Organization
Organization
Characteristics of a Corporation
Separate Legal Existence
Limited Liability of Stockholders
Transferable Ownership Rights
Ability to Acquire Capital
Continuous Life
Government Regulations
Additional Taxes
Corporate Management
Chapter
11-12
The
The Corporate
Corporate Form
Form of
of Organization
Organization
Characteristics of a Corporation
Separate Legal Existence
Limited Liability of Stockholders
Transferable Ownership Rights
Ability to Acquire Capital
Continuous Life
Government Regulations
Additional Taxes
Corporate Management
Chapter
11-13
Corporations pay
income taxes as
a separate legal
entity and
stockholders pay
taxes on cash
dividends.
The
The Corporate
Corporate Form
Form of
of Organization
Organization
Characteristics of a Corporation
Separate Legal Existence
Limited Liability of Stockholders
Transferable Ownership Rights
Ability to Acquire Capital
Continuous Life
Government Regulations
Additional Taxes
Corporate Management
Chapter
11-14
Separation of
ownership and
management prevents
owners from having
an active role in
managing the
company.
The
The Corporate
Corporate Form
Form of
of Organization
Organization
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
Chapter
11-15
Vice President
Finance/Chief
Financial Officer
Vice President
Operations
Vice President
Human
Resources
Controller
Chapter
11-16
The
The Corporate
Corporate Form
Form of
of Organization
Organization
Characteristics of a Corporation
Other Forms of Business Organization
Limited partnerships
Limited liability partnerships (LLPs)
Limited liability companies (LLCs)
S Corporation
no double taxation
cannot have more than 75 shareholders
Chapter
11-17
The
The Corporate
Corporate Form
Form of
of Organization
Organization
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).
Corporations engaged in interstate commerce must obtain a
license from each state in which they do business.
Chapter
11-18
The
The Corporate
Corporate Form
Form of
of Organization
Organization
Stockholders Rights
Illustration 11-3
Chapter
11-19
The
The Corporate
Corporate Form
Form of
of Organization
Organization
Stockholders Rights
Illustration 11-3
Chapter
11-20
The
The Corporate
Corporate Form
Form of
of Organization
Organization
Stockholders Rights
Illustration 11-3
Chapter
11-21
Stock
Stock Issue
Issue Considerations
Considerations
Authorized Stock
Charter indicates the amount of stock that a
corporation is authorized to sell.
Number of authorized shares is often reported
in the stockholders equity section.
Chapter
11-22
Stock
Stock Issue
Issue Considerations
Considerations
Prenumbered
Shares
Illustration 11-4
Name of corporation
Stockholders
name
Signature of
corporate official
Chapter
11-23
Stock
Stock Issue
Issue Considerations
Considerations
Issuance of Stock
Corporation can issue common stock
directly to investors or
indirectly through an investment banking firm.
Stock
Stock Issue
Issue Considerations
Considerations
Par and No-Par Value Stocks
Capital stock that has been assigned a value per share.
Years ago, par value determined the legal capital per
share that a company must retain in the business for
the protection of corporate creditors.
Today many states do not require a par value.
No-par value stock is quite common today.
In many states the board of directors assigns a stated
value to no-par shares.
Chapter
11-25
Stock
Stock Issue
Issue Considerations
Considerations
Review Question
Which of these statements is false?
a. Ownership of common stock gives the owner a
voting right.
b. The stockholders equity section begins with paidin capital.
c. The authorization of capital stock does not result
in a formal accounting entry.
d. Legal capital is intended to protect stockholders.
Chapter
11-26
Stock
Stock Issue
Issue Considerations
Considerations
Common
CommonStock
Stock
Paid-in
Paid-inCapital
Capital
Account
Account
Preferred
PreferredStock
Stock
Paid-in
Paid-inCapital
Capitalin
in
Excess
Excessof
ofPar
Par
Account
Account
Account
Account
Two Primary
Sources of
Equity
Retained
RetainedEarnings
Earnings
Account
Account
Stock
Stock Issue
Issue Considerations
Considerations
Common
CommonStock
Stock
Paid-in
Paid-inCapital
Capital
Account
Account
Preferred
PreferredStock
Stock
Additional
AdditionalPaidPaidin
inCapital
Capital
Account
Account
Account
Account
Two Primary
Sources of
Equity
Retained
RetainedEarnings
Earnings
Account
Account
Stock
Stock Issue
Issue Considerations
Considerations
Accounting for Common Stock Issues
Primary objectives:
1)
Chapter
11-29
Stock
Stock Issue
Issue Considerations
Considerations
Accounting for Common Stock Issues
Illustration: Assume that Hydro-Slide, Inc. issues 1,000
shares of $1 par value common stock at par. Prepare the
journal entry.
Cash
1,000
Chapter
11-30
1,000
Stock
Stock Issue
Issue Considerations
Considerations
Accounting for Common Stock Issues
Illustration: Now assume Hydro-Slide, Inc. issues an
additional 1,000 shares of the $1 par value common stock for
cash at $5 per share. Prepare Hydro-Slides journal entry.
Cash
Chapter
11-31
5,000
1,000
4,000
Stock
Stock Issue
Issue Considerations
Considerations
Stockholders equity section assuming Hydro-Slide, Inc.
has retained earnings of $27,000.
Illustration 11-5
Chapter
11-32
Stock
Stock Issue
Issue Considerations
Considerations
Review Question
ABC Corp. issues 1,000 shares of $10 par value common stock
at $12 per share. When the transaction is recorded, credits
are made to:
a. Common Stock $10,000 and Paid-in Capital in Excess of
Stated Value $2,000.
b. Common Stock $12,000.
c. Common Stock $10,000 and Paid-in Capital in Excess of
Par Value $2,000.
d. Common Stock $10,000 and Retained Earnings $2,000.
Chapter
11-33
Chapter
11-34
Accounting
Accounting for
for Treasury
Treasury Stock
Stock
Common
CommonStock
Stock
Paid-in
Paid-inCapital
Capital
Account
Account
Preferred
PreferredStock
Stock
Paid-in
Paid-inCapital
Capitalin
in
Excess
Excessof
ofPar
Par
Account
Account
Account
Account
Two Primary
Sources of
Equity
Retained
RetainedEarnings
Earnings
Account
Account
Less:
Less:
Treasury
TreasuryStock
Stock
Account
Account
Chapter
11-35
Accounting
Accounting for
for Treasury
Treasury Stock
Stock
Treasury stock - corporations own stock that it has
reacquired from shareholders, but not retired.
Corporations purchase their outstanding stock:
1.
Accounting
Accounting for
for Treasury
Treasury Stock
Stock
Purchase of Treasury Stock
Generally accounted for by the cost method.
Debit Treasury Stock for the price paid.
Treasury stock is a contra stockholders equity
account, not an asset.
Purchase of treasury stock reduces stockholders
equity.
Chapter
11-37
Accounting
Accounting for
for Treasury
Treasury Stock
Stock
Illustration 11-6
32,000
32,000
Accounting
Accounting for
for Treasury
Treasury Stock
Stock
Stockholders Equity with Treasury stock
Illustration 13-7
Accounting
Accounting for
for Treasury
Treasury Stock
Stock
Review Question
Treasury stock may be repurchased:
a. to reissue the shares to officers and employees
under bonus and stock compensation plans.
b. to signal to the stock market that management
believes the stock is underpriced.
c. to have additional shares available for use in the
acquisition of other companies.
d. more than one of the above.
Chapter
11-40
Chapter
11-41
Preferred
Preferred Stock
Stock
Features often associated with preferred stock.
1.
Preference as to dividends.
Chapter
11-42
Preferred
Preferred Stock
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.
Cash
120,000
100,000
20,000
Preferred
Preferred Stock
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.
Chapter
11-44
Preferred
Preferred Stock
Stock
Liquidation Preference
Preference on corporate assets if the
corporation fails.
Preference may be
Chapter
11-45
Preferred
Preferred Stock
Stock
Review Question
M-Bot Corporation has 10,000 shares of 8%, $100 par
value, cumulative preferred stock outstanding at
December 31, 2010. No dividends were declared in 2008
or 2009. If M-Bot wants to pay $375,000 of dividends in
2010, common stockholders will receive:
a. $0.
b. $295,000.
c. $215,000.
d. $135,000.
Chapter
11-46
Dividends
Dividends
A distribution of cash or stock to stockholders on a
pro rata (proportional to ownership) basis.
Types of Dividends:
1.
Cash dividends.
3.
Stock dividends.
2.
Property dividends.
4.
Dividends
Dividends
Cash Dividends
For a corporation to pay a cash dividend, it must have:
Chapter
11-48
1.
2.
Adequate cash.
3.
Dividends
Dividends
Dividends require information concerning three dates:
Chapter
11-49
Dividends
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)
Retained earnings
Dividends payable
December 22 (Date of Record)
50,000
50,000
No entry
50,000
50,000
Dividends
Dividends
Review Question
Entries for cash dividends are required on the:
a. declaration date and the record date.
b. record date and the payment date.
c. declaration date, record date, and payment date.
d. declaration date and the payment date.
Chapter
11-51
Chapter
11-52
Dividends
Dividends
Stock Dividends
Illustration 11-10
Dividends
Dividends
Stock Dividends
Reasons why corporations issue stock dividends:
Chapter
11-54
1.
2.
3.
Dividends
Dividends
Effects of Stock Dividends
Changes the composition of stockholders equity.
Total stockholders equity remains the same.
No effect on the par or stated value per share.
Increases the number of shares outstanding.
Chapter
11-55
Dividends
Dividends
Illustration: Medland Corp. declares a 10% stock dividend
on its $10 par common stock when 50,000 shares were
outstanding. The market price was $15 per share.
Illustration 11-9
Dividends
Dividends
Stock Split
Reduces the market value of shares.
No entry recorded for a stock split.
Decrease par value and increase number of
shares.
Chapter
11-57
Dividends
Dividends
Illustration: Assuming that instead of issuing a 10% stock
dividend, Medland splits its 50,000 shares of common stock
on a 2-for-1 basis.
Illustration 11-11
Chapter
11-58
Dividends
Dividends
Differences between the effects of stock dividends
and stock splits.
Illustration 11-12
Dividends
Dividends
Review Question
Which of these statements about stock dividends is true?
a. Stock dividends reduce a companys cash balance.
b. A stock dividend has no effect on total
stockholders equity.
c. A stock dividend decreases total stockholders
equity.
d. A stock dividend ordinarily will increase total
stockholders equity.
Chapter
11-60
Retained
Retained Earnings
Earnings
Retained earnings is net income that a company
retains for use in the business.
Net income increases Retained Earnings and a
net loss decreases Retained Earnings.
Retained earnings is part of the stockholders
claim on the total assets of the corporation.
A debit balance in Retained Earnings is
identified as a deficit.
Chapter
11-61
Retained
Retained Earnings
Earnings
Illustration 11-14
Chapter
11-62
Retained
Retained Earnings
Earnings
Retained Earnings Restrictions
Restrictions can result from:
Chapter
11-63
1.
Legal restrictions.
2.
Contractual restrictions.
3.
Voluntary restrictions.
Presentation
Presentation of
of Stockholders
StockholdersEquity
Equity
Balance Sheet Presentation
Two classifications of paid-in capital:
1. Capital stock
2. Additional paid-in capital
Chapter
11-64
Presentation
Presentation of
of Stockholders
StockholdersEquity
Equity
Balance
Sheet
Presentation
Chapter
11-65
Illustration 11-16
Measuring
Measuring Corporate
Corporate Performance
Performance
Dividend Record
Illustration: Using the information shown below, calculate
the payout ratio for Nike in 2007 and 2006.
Illustration 11-18
$357.2
$1,491.5
= 24%
$304.9
$1,392.0
= 22%
Measuring
Measuring Corporate
Corporate Performance
Performance
Earnings Performance
Illustration: Calculate Nikes return on common
stockholders equity ratios for 2007 and 2006.
Illustration 11-20
This ratio shows how many dollars of net income a company earned for each
dollar of common stockholders equity.
(Answers on notes page)
Chapter
11-67
Measuring
Measuring Corporate
Corporate Performance
Performance
Debt Versus Equity Decision
Chapter
11-68
Illustration 11-21
Measuring
Measuring Corporate
Corporate Performance
Performance
Debt Versus Equity Decision
Illustration 11-22
Chapter
11-69
Entries
Entries for
for Stock
Stock Dividends
Dividends
Illustration: Medland Corporation declares a 10% stock dividend on
its 50,000 shares of $10 par value common stock. The current fair
market value of its stock is $15 per share. The entry to record this
transaction at the declaration date is:
Retained earnings (50,000 x 10% x $15)
Common stock dividends distributable
Additional paid-in capital
75,000
50,000
25,000
Illustration 11A-1
Chapter
11-70
Entries
Entries for
for Stock
Stock Dividends
Dividends
Illustration: When Medland issues the dividend shares, it decreases
Common Stock Dividends Distributable and increases Common Stock
as follows.
Common stock dividends distributable
Common stock
Chapter
11-71
50,000
50,000
Copyright
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Chapter
11-72