chapter 9 powerpoints on stockholders' equity

Download Chapter 9 PowerPoints on Stockholders' Equity

Post on 08-Apr-2015

213 views

Category:

Documents

2 download

Embed Size (px)

DESCRIPTION

For November 1 & 3

TRANSCRIPT

Chapter 9

9-1

Explain the Features of a Corporation

9-2

Separate Legal Entity Corporation distinct from owners; artificial person

Continuous Life/Transfer of Ownership: Company continues to exist & operate regardless of ownership changes Separation of Ownership & Management: Stockholders elect Board of Directors who, in turn, appoint officers Government Regulation Corporate activities are monitored by government regulations9-3

Limited Liability Stockholders are not personally liable for corporate debts

Corporate Taxation Corporations are taxed on their earnings; dividends distributed to owners are also taxed

Incorporators Organize the corporation Pay fees Sign charter File documents with the state Agree to bylaws

9-4

9-5

Vote at stockholder meetings Receive dividends Receive share if corporation liquidates Maintain proportionate ownership Preemptive right9-6

Paid-in capital Represents amounts contributed by stockholders Include stock accounts

Retained earnings Amounts earned and kept by the corporation

9-7

Common Basic form of common stock Have rights of ownership Benefit most of company succeeds Risk most if company does not succeed

Preferred Have preference in receiving dividends and assets in case of liquidation Hybrid between common stock and debt Rare for corporations to issue9-8

Common stock

Preferred stock

Long-term debt

Obligation to repay principal Dividends/interest

No Dividends are not tax deductible Only after declaration

No Dividends are not tax deductible Only after declaration

Yes Interest expense is tax deductible t fixed rates and date

Obligation to pay dividends/interest

9-9

Par value Arbitrary amount assigned to share of stock

No-par Does not have a par value

In most states, represents minimum price for shares Legal capital

May have a stated value

9-10

Authorized Issued Outstanding Issue price Market price9-11

Account for the Issuance of Stock

9-12

A company issues 100,000 shares of $5 par value common stock at par 100,000 x $5 The common stock account is always credited in the amount of the shares issued multiplied by par valueAccounts Cash Common stock Debit $500,000 $500,0009-13

Date

Credit

A company issues 100,000 shares of $5 par value stock for $12 per share The amount above par is credited to Paid-in Capital in Excess of ParAccounts Cash (100,000 x $12 price) Common stock (100,000 x $5 par) Paid-in capital in excess of par Debit $1,200,000 $500,000 $700,0009-14

Date

Credit

$1,200,000 - $500,000

A company issues 100,000 shares of no par value common stock at a price of $5 per share 100,000 Substitute market price for par value in journal entryDate Accounts Cash Common stock Debit $500,000 $500,0009-15

Credit

Assets recorded at their fair values Common stock and paid-in capital credited accordingly Suppose a company purchased equipment valued at $800,000 by issuing 50,000 shares of its $5 par common stock 50,000 x $5Debit 8 , 25 , 55 ,9-16

Date Accounts E uiCo

Credit

ent (Fair value of equipment)on stock (50,000 x $5 par)

Paid-in ca ital in excess of ar

$800,000 - $250,000

S 9-7, p. 571

Journalize all transactions. Compare balances in all accounts in both cases. Same or different?

9-17

Case A Issue stock and buy the assets in separate transactions:DEBIT CREDIT

DATE ACCOUNT TITLES AND EXPLANATION

Cash Common Stock (12,000 $20) Paid-in Capital in Excess of Par Issued stock Building Equipment Cash Purchased plant assets

00,000 240,000 560,000

550,000 250,000 00,0009-18

Case B

Issue stock to acquire the assets:DEBIT CREDIT

DATE

ACCOUNT TITLES AND EXPLANATION

Building Equipment Common Stock (12,000 $20) Paid-in Capital in Excess of Par

550,000 250,000 240,000 560,000

Issued stock to acquire building and equipment

9-19

The balances in all accounts are the same:Building Equipment Common Stock (12,000 $20) Paid-in Capital in Excess of Par . $550,000 250,000 240,000 560,000

9-20

Follows the same pattern as common stock entries Preferred stock is credited for the shares issued

multiplied by the par value A separate paid-in capital account is used if stock is issued above par

9-21

Authorized maximum number of shares company can issue as indicated in its charter Issued number of shares company has sold to shareholders Outstanding number of shares currently in shareholders possession Any difference between issued and outstanding is

due to treasury stock9-22

S 9- , p. 572

Required: Prepare stockholders equity section of balance sheet. Net income has already been closed to RE.Note: All amounts have dollar amounts in thousands except for par value.9-23

Thousands Stockholders equity: Common stock, $.01 par, 400 thousand shares issued Paid-in capital in excess of par Retained earnings Other stockholders equity Total stockholders equity .. .. .. $ 4 196 647 (22) $ 25

9-24

E9-20A, p. 575 transaction dataAuthorized to issue 120,000 shares of common stock and 7,000 shares of preferred stock. Had following stock issuance transactions during the year: Jan 19 Issued 12,000 shares of $2.00 par common stock for cash of $6.00 per share Apr 3 Issued 400 shares of $1.00 no-par preferred stock for $54,000 cash Apr 11 Received inventory valued at $16,000 and equipment with market value of $9,500 for 3,700 shares of the $2.00 par common stock.9-25

E9-20A (req. 1)

Journal - Jan 19

9-26

E9-20A (req. 1)

Journal Apr 3

9-27

E9-20A (req. 1)

Journal Apr 11

9-28

E9-20A (req. 2), p. 575Given: Ending RE balance is deficit of $43,000.

9-29

Describe How Treasury Stock Affects a Company

9-30

Company s own stock that it has issued and later reacquired Reasons: All authorized shares have been issued and shares

are needed for employee stock purchase plans Company wants to purchase its shares at a low price and the re-issue them at a higher price Management want to avoid a takeover9-31

Recorded at cost (not par value) Contra-equity account (debit balance) Reduces stockholders equity and assets If sold above cost, paid-in capital from treasury stock transactions is credited9-32

Suppose a company purchased 10,000 shares of its own $1 par common stock for $200,00010,000 x $2

Dat

Acc

ts

Debit

redit

Treasury stock Cash

$200,000 $200,000

9-33

Later, the company resells the treasury shares for $250,000 (above cost)Debit $250,000 $200,000 Credit

Date Accounts Cash

(given above) (original cost)

Treasury stock

Paid-in capital from treasury stock transactions ($250,000 - $200,000) $50,0009-34

Balance = Net incomes net losses dividends declared Accumulated earnings the company keeps Not a reservoir of cash Normal credit balance Debit balance = Deficit Losses and dividends exceed earnings9-35

Credit balance

Lifetime earnings

> dividends If retained earnings decreases, net income < dividends9-37

S 9-10, p. 572A corporation reported the following SE section at Dec 31 (in millions):

During the next year, the corporation purchased treasury stock at a cost of $29 million and resold treasury stock for $8 million (this stock had cost the corporation $2 million).9-38

DATE ACCOUNT TITLES AND EXPLANATION

DEBIT

CREDIT

Millions

Treasury Stock Cash Cash Treasury Stock Transactions .. ...... .. ..

29 29

2 6

Paid-in Capital from Treasury Stock

Overall, stockholders equity decreased by $21 million ($29 M paid out minus $8 M received).9-39

E9-24A, p. 576Transactions: Jan 17 Issued 2,200 shares of $2.50 par common stock at $10 per share May 23 Purchased 300 shares of treasury stock at $12 per share Jul 11 Sold 200 shares of treasury stock at $20 per share9-40

E9-24A, p. 576 J/E on Jan 17

9-41

E9-24A, p. 576 J/E on May 23

9-42

E9-24A, p. 576 J/E on July 11

9-43

E9-24A, p. 576 Effect on Equity1/17 1/17 5/23 7/11 7/11 Net increase 5,500 16,500 (3,600) 2,400 1,600 22,400

9-44

Account for Dividends

9-45

Distribution to stockholders Three forms Cash Stock Noncash assets

9-46

Company must have both: Enough Retained Earnings to declare the dividend Enough Cash to pay the dividend

Board of Directors has authority to declare the dividend

9-47

Date of Declaration Board of Directors announces dividend Corporation is now obligated to pay

Date of record Stockholders who own shares on this date will

receive dividend

Date of payment Payment sent to shareholders on record9-48

Date of Declaration

Accounts

Debit

Credit

Retained Earnings Dividends Payable

$$$$$ $$$$$

Equity Decreases; Liabilities Increase9-49

Date of Record no entry Date of PaymentDebit Credit

Accounts

Dividends Payable Cash

$$$$$ $$$$$

Liabilities Decrease; Assets Decrease9-50

We saw this slide earlier

Retained EarningsBeginning Balance Dividends Declared Net Income Ending Balance

If retained earnings increases, net income > dividends If retained earnings decreases, net income < dividends9-51

Preferred shareholders receive dividends

Recommended

View more >