stockholder’s equity. why are we studying stockholders’ equity owners investments residual...
TRANSCRIPT
Stockholder’s Equity
Why are we studying Stockholders’ Equity Owners Investments Residual Equity Required Reconciliation Statement
2. Components of Shareholders Equity
Capital Stock Preferred Stock Additional Paid in Capital Treasury Stock Other changes in Assets Accounts
Investments Pensions Foreign Currency
Preferred Stock
1. preferred as to dividends 2. preference as to assets upon
liquidation 3. convertible into common stock 4. callable at option of corporation 5. non-voting
Preferred Stock
Cumulative preferred Dividends in arrears
Participating preferred Convertible preferred
Participation limited Callable preferred
Call premium
Convertible Preferred
Assume 500s of $100 par sold at $120s
1 Cash 500 x $120 60,000
Preferred Stock 500 x 100 50,000
Paid in Capital Preferred stock 10,000
Assume each preferred=4 shares of CS
Preferred Stock 500 x 100 50,000
Paid in Capital Preferred stock 10,000
Common Stock 4 x 500 x $20
40,000
Paid in Capital PS conversion
20,000
Book value Method
Preferred Stock Conversion
Assume each preferred=7 shares of CS
Preferred Stock 500 x 100 50,000
Paid in Capital Preferred stock 10,000
Retained Earnings ( 70,000-60,000)
10,000
Common Stock 7 x 500 x $20 70,000
Book value Method
Preferred Stock With WarrantsAPB 14
PS$ = FMV-PS/ (FMV-PS+FMV-warrants) x proceeds
W$ = FMV-Warrants/ (FMV-PS+FMV-warrants) x proceeds
PS = 115,192 = 119,000/(119,000+6,000)x121,000
Warrants = 5,808 = 6,000/(119,000+6,000)x121,000
Preferred Stock with warrants
Cash 1000 x$121 121,000
Preferred Stock , 1000 x 100 100,000
Paid in capital preferred 115,192 - 100,000 15,192
Common Stock warrants 5,808
Assume all warrants are exercised
Cash 1000 x 40 40,000
Common Stock warrants 5,808
Common Stock 1000 x 10 10,000
Paid in capital 35.808
4. Treasury Stock
Why? Non taxable to shareholders Increase Earnings per Share Increase return on Equity To provide shares for compensation
agreements To thwart take over attempts To make a market for the stock
Treasury Stock
Treasury stock is not an asset Treasury stock is issued but not
outstanding Accounting for Purchase
Cost method Par value method (seldom used)
Purchase and sale of treasury Stock
1 Cash 72,000
Common Stock 6000 x $10 60,000
Paid in Capital 12,000
2 Treasury Stock 1,000s x $13 13,000
Cash 13,000
3 Cash 600 x $15 9,000
Treasury Stock 600 x 13 7,800
Paid in capital – Treasury Stock 1,200
Purchase and sale of treasury Stock
4 Cash 200 x $8 1600
Paid in Capital –Treasury Stock 1000
Treasury Stock 200 x $13 2600
Analysis of PIC Treasury stock: Debit Credit
1 1200
2 1000
Balance is now 200 credit
Purchase and sale of treasury Stock
5 Cash 100 x $10 1,000
Paid in capital Treasury stock 200
Retained Earnings 100
Treasury Stock 100 x $13 1,300
Retirement of Treasury StockCommon Stock 100s x $10 1,000
Paid in Capital Common Stock($12,000/6,000s) X 100 shares
200
Retained Earnings 100
Treasury Stock 100 x $13 1,300
$12,000 is remaining par value
6,000s remaining shares
Green MailBlack Mail?
When Common stock is re-acquired at a price substantially greater than the market value Thwart takeover attempt Seller may agree to
Restrict purchases Abandon acquisition
Green Mail
6 Treasury Stock 2000 x $13 26,000
Paid In capital Treasury Stock (NO) 0
Litigation expense settlement 2000 x $13
26,000
Cash 2,000 x 26 52,000