stockholders' equity - no.3.ppt

8/9/2019 Stockholders' Equity - No.3.ppt

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FinancialAccounting

Stockholders’ Equity

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Advantages of a Corporation

1. Can raise more capital than aproprietorship or partnership can

2. Continuous life

. Ease of transferring o!nership". #imited lia$ility of stockholders

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%isadvantages of aCorporation

1. Separation of o!nership2. Corporate ta&ation

. 'overnment regulation

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Stockholders’ (ights

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Vote

Dividends

Liquidation

Preemption


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Stockholders (ights

• )nless *ithheld $y Agreement – +oting

• ,ne +ote for each share o!ned

– %ividends• (ight to (eceive proportionate share – #iquidation

• (ight to (eceive proportionate share of -etAssets

– Preemption• (ight to aintain one’s proportionate

o!nership – )sually !ithheld from stockholders

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FinancialAccounting

Stockholder’s Equity Section

of the /alance Sheet

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Capital Stock

• Authori6ed shares – 0otal 7 of Shares availa$le for sale

• ,utstanding shares – 0otal 7 of Shares actually sold – (epresents 1889 o!nership – ,ften #ess than shares authori6ed

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0ypes of Capital Stock

• Common Stock – (esidual Equity :older

• aid %ividends after referred Stockholders• After Creditors ; referred Stockholders are

satisect to #imit

– +oting (ights 4controls the corporation5

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0ypes of Capital Stock

• referred Stock – (ights and rivileges

• Current %ividend reference – ay $e in Arrears» 0hough in Arrears is not a lia$ility

• %ividends are still discretionary

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Financial AccountingAccounting for ?ssuance of

Common Stock and (e3purchase of 0reasury Stock

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Common Stock at ar

Suppose ?:, ’s common stock has a par valueof @18 per share. 0he company issues =288shares of common stock at par . *hat is the

entryB

Jan 8 Cash (6,200 x $10 62,000Common !to"# 62,000

To record issuance of stock


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Common Stock a$ove arSuppose ?:, ’s common stock has a par value

of @8.81 per share. 0he company issues=288 shares of common stock for @18 pershare. *hat is the entryB

Ju 2% Cash (6,200 x $10 62,000 Common !to"# 62 Paid&in Capita in 'x"ess o Par 61,)%8

To record issuance of stock


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/alance SheetCommon Stock A$ove ar

Common Stock, $.01 par;

40,000 shar s a!thor"# , 6,200 shar s "ss! $ 62%a" &"n cap"ta' n (c ss o) par 61,938*ota' pa" &"n cap"ta' $ 62,000+ ta"n arn"n s 194,000*ota' stockho' rs- !"t/ $256,000

Stockho' rs- !"t/


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Common Stock at arSuppose ?:, ’s common stock is no par value

stock. 0he company issues =288 shares ofcommon stock for @28 per share. *hat is theentryB

Ju 2% Cash (6,200 x $20 12*,000 Common !to"# 12*,000To record issuance of stock


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referred Stock

• Accounting for preferred stockfollo!s the pattern illustrated forcommon stock.

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?:, Corp. /efore urchaseof 0reasury Stock

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Common Stock $ 203%a" &"n cap"ta' "n (c ss o) par 69,655+ ta"n arn"n s 193,632

*ota' !"t/ $263,490

Stockho' r-s !"t/ at c m r 31, 2005") no tr as!r/ stock p!rchas


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?:, Corp. urchaseof 0reasury Stock

%uring 288 = ?:, paid @ =1D8 to purchase2 shares of its common stock as treasurystock.

+ov 1 reasur- !to"# .,1/0

Cash .,1/0Purchased treasury stock


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?:, Corp. After urchaseof 0reasury Stock

Common Stock $ 203%a" &"n cap"ta' "n (c ss o) par 69,655+ ta"n arn"n s 193,632

ss *r as!r/ stock288 shar s at cost 5,170*ota' !"t/ $258,320

Stockho' r-s !"t/ at c m r 31, 2005"th tr as!r/ stock p!rchas


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Sale of 0reasury Stock

Assume that on uly 22= 288 = the shares oftreasury stock are sold for @ = 88.

Ju 22 Cash .,%00

reasur- !to"# .,1/0Paid&in Capita rom reasur- !to"# ransa"tions 1%0

Sold treasury stock oss o!' r !"r "t o) r ta"n arn"n s


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?:, Corp. After Sale of 0reasury Stock

Common Stock $ 203%a" &"n cap"ta' "n (c ss o) par 69,785+ ta"n arn"n s 193,632*ota' !"t/ $263,620!"t/ )or p!rchas o)tr as!r/ stocks 263,490

ncr as "n stockho' rs- !"t/ $ 130

Stockho' r-s !"t/ at c m r 31, 2006


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(etirement of Stock

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• %ecreases the outstanding stock of the corporation• (etired shares cannot $e reissued• 0here is no gain or loss on retirement


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Equity 0ransactions on theCash Flo! Statement

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%roc s )rom "ss!anc o) common stock $172,000%!rchas o) tr as!r/ stock 5,170,000

t cash !s / )"nanc"n act":"t" s $ 4,998,000

!r"n 2003,


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Financial Accounting(etained Earnings and

%ividends

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(etained Earnings

• ?s -ot Cash• ?s -ot a (eserve held for %ividends• ?s the account used to (ecord

– Cash %ividends – Stock %ividends

• ?s ro


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%ividends and Splits

• %ividend 3 corporation’s return to itsstockholders of some of the $ene


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%ividend %ates

• %eclaration date – /,% announces dividend

• %ate of record – Stockholders !ho o!n stock $y this date !ill receive dividend

• ayment date – *hen dividend is paid

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referred Stock %ividends 0he preferred stock of inecraft is cumulative. Suppose the

company passed the 28& preferred dividend of@1 8=888. ?n 28&D= the company declares a @ 88=888dividend.

etained 'arnin s .00,000Dividends Pa-a e&Pre erred %00,0003Dividends Pa-a e&Common 200,000

Declared a cash dividend *$150,000 x 2 years


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Stock %ividend

?:, declared a 189 stock dividend in288 . Assume ?:, had 28=888=888shares of common stock outstanding.

0he stock is trading for @1 pershare. :o! !ould this stock dividend$e recordedB

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Stock Split E&ample

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FinancialAccounting

Stock +aluations

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Stock +alues

• arket value – arket rice

• (edemption value

– Set price for referred stock• -ot Equity $ut a lia$ility• #iquidation value

– Amount paid to referred stockholders in casethe company liquidates

• /ook value – Amount of Stockholders Equity per outstanding share

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/ook +alue er Share

• referred stock G4Redemption value + Dividends in arrears 5 K -um$er

of shares of preferred outstanding

• Common stock G40otal stockholders’ equity – Preferred equity 5 K-um$er of shares of common stock outstanding

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/ook +alue

Pre erred sto"#, 65, $100 par, .,000 shares authori7ed, *00 shares issued, redemption va ue $1%0 per share $ *0,000

dditiona paid&in "apita in ex"ess o par 9pre erred *,000Common sto"#, $10 par, 20,000 shares

authori7ed, .,.00 shares issued ..,000dditiona paid&in "apita in ex"ess o par 9

"ommon /2,000etained earnin s 8.,000reasur- sto"# 9 "ommon, .00 shares at "ost ( 1.,000ota sto"#ho ders: equit- $2*1,000

Stockholders! "#uity


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/ook +alue Common Stock

Suppose that four years’ 4including thecurrent year5 cumulative preferreddividends are in arrears and thatpreferred stock has a redemptionvalue of @1 8 per share.

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/ook +alue L referred Stock

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Preferred e#uityedemption va ue (*00 shares ; 1%0 $ .2,000Cumu ative dividends ($*0,000 ; $0 06 ; * -rs ),600Pre erred equit- $ 61,600

61,600 < *00 = $1.* 00


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/ook +alue Common StockPreferred e#uityedemption va ue (*00 shares ; 1%0 $ .2,000Cumu ative dividends ($*0,000 ; $0 06 ; * -rs ),600Pre erred equit- $ 61,600

%o&&on e#uityota sto"#ho ders: equit- $2*1,000Less pre erred equit- 9 61,600Common equit- $1/),*00>oo# va ue per share? $1/),*00 @ .,000 shares3 $ %. 88

3.,.00 shares issued minus .00 treasur- shares

stockholders' equity - no.3.ppt

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