Corporations Paid In Capital And Balance Sheet
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Transcript of Corporations Paid In Capital And Balance Sheet
Copyright © 2007 Prentice-Hall. All rights reserved 1
Corporations: Paid-in Capital Corporations: Paid-in Capital and the Balance Sheetand the Balance Sheet
Chapter 13
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Objective 1Objective 1
Identify the characteristics of a corporation
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CharacteristicsCharacteristics
• Separate legal entity• Continuous life and transferability of
ownership• No mutual agency• Limited liability of stockholders• Separation of ownership and management• Corporate taxation• Government regulation
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Organizing a CorporationOrganizing a Corporation
• Incorporators obtain charter from the state
• Charter authorizes corporation to– Issue stock– Conduct business in accordance with state
law and the corporation’s bylaws
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Organizing a CorporationOrganizing a Corporation
• Stockholders elect board of directors
• Board – Sets policy – Appoints officers – Elects a chairperson
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Capital StockCapital Stock
• Corporate ownership - evidenced by a stock certificate
• Total number of shares authorized is limited by charter
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Stockholders’ EquityStockholders’ Equity
• Two components:– Paid-in capital– Retained earnings
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Stockholders’ EquityStockholders’ Equity
Sole-proprietor Corporation
Owner, CapitalInvestmentsNet Income
Paid in CapitalInvestments
Retained Earnings
Net Income
Withdrawals
Dividends
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Stockholders’ EquityStockholders’ Equity
Issue stock
CREDITDEBITREFDESCRIPTIONDATE
GENERAL JOURNAL
Cash XXXX
Common Stock XXXX
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Stockholders’ EquityStockholders’ Equity
Close income summary
CREDITDEBITREFDESCRIPTIONDATE
GENERAL JOURNAL
Income Summary XXXX
Retained Earnings XXXX
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Stockholders’ RightsStockholders’ Rights
• Four basic rights– Vote– Dividends– Liquidation– Preemption
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Classes of StockClasses of Stock
• Common stock - most basic form of capital stock
• Preferred stock - owners have certain advantages over common stockholders– Receive dividends before common– Upon liquidation, receive assets before
common– Right to vote sometimes withheld
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Classes of StockClasses of Stock
• Par value
• No-par value
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Objective 2Objective 2
Record the issuance of stock
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Issuing StockIssuing Stock
Paid-in Capital
Common Stock
Par
Paid-in Capital in Excess of Par
Amount received over par
CashAmountreceived
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CREDITDEBITREFDESCRIPTIONDATE
GENERAL JOURNAL
Issuing StockIssuing Stock
On June 2, Mustang Properties issued 1,000 shares of $1 par common stock for cash of $1 per share
Jun2 Cash 1,000Common Stock 1,000
(1,000 shares x $1)
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E13-14E13-14
CREDITDEBITREFDESCRIPTIONDATE
GENERAL JOURNAL
Jun19 Cash 8,000Common Stock 1,000Paid-in Capital in Excess of Par-common 7,000
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E13-14E13-14
CREDITDEBITREFDESCRIPTIONDATE
GENERAL JOURNAL
Jun19 Cash 8,000Common Stock 1,000Paid-in Capital in Excess of Par-common 7,000
Jun19 Cash 8,000Common Stock 1,000Paid-in Capital in Excess of Stated-common 7,000
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E13-14E13-14
CREDITDEBITREFDESCRIPTIONDATE
GENERAL JOURNAL
Jun19 Cash 8,000Common Stock 1,000Paid-in Capital in Excess of Par-common 7,000
Jun19 Cash 8,000Common Stock 8,000
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E13-14E13-14
CREDITDEBITREFDESCRIPTIONDATE
GENERAL JOURNAL
Jul3 Cash 15,000Preferred Stock 15,000
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E13-14E13-14
CREDITDEBITREFDESCRIPTIONDATE
GENERAL JOURNAL
Jul11 Equipment 20,000Common Stock 3,000Paid-in Capital in Excess ofPar – Common 17,000
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E13-14 (2)E13-14 (2)Paid-in Capital
Preferred Stock
Paid-in Capitalin Excess
of Par, CommonCommon Stock1,000 7,00015,0003,000 17,0004,000 24,000
Total Paid-in Capital = $43,000Total Paid-in Capital = $43,000
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Objective 3Objective 3
Prepare the stockholders’ equity section of a corporation balance sheet
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CREDITDEBITREFDESCRIPTIONDATE
GENERAL JOURNAL
E13-17E13-17
Aug 6 Cash 13,000Common Stock 500Paid in Capital in Excess of Par, Common 12,500
12 Cash 20,000Preferred Stock 20,000
14 Land 26,000Common Stock 1,000Paid in Capital in Excess of Par, Common 25,000
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CREDITDEBITREFDESCRIPTIONDATE
GENERAL JOURNAL
E13-17E13-17
Aug 31 Income summary 40,000
Retained earnings 40,000
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E13-17E13-17Stockholders’ EquityPaid-in capital:Preferred stock, $3, no-par, 100,000
authorized, 300 issued……………….$20,000
Common stock, $1 par, 500,000authorized, 1,500 issued……………. 1,500
Paid-in capital in excess of par common……………………………… 37,500Total paid-in capital……………………$59,000
Retained earnings………………………. 40,000
Total stockholders’ equity…………… $99,000
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Objective 4Objective 4
Account for cash dividends
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Dividend DatesDividend Dates
• Declaration date
• Date of record
• Payment date
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Declaring and Paying DividendsDeclaring and Paying DividendsS13-8S13-8
Preferred stock: 4% x $100,000 $4,000
Common: $0.50 x 50,000 25,000
Total dividends $29,000
CREDITDEBITREFDESCRIPTIONDATE
GENERAL JOURNAL
2008
Dec 15 Retained earnings 29,000
Dividends payable 29,000
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Declaring and Paying DividendsDeclaring and Paying DividendsS13-8S13-8
CREDITDEBITREFDESCRIPTIONDATE
GENERAL JOURNAL
2009
Jan 4 Dividends payable 29,000
Cash 29,000
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Preferred: Per Share DividendPreferred: Per Share Dividend
• Stated as percentage of par value or as specified amount
• How much does one share of 3% preferred stock with a $50 par value receive when dividends are declared and paid? $1.50
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Preferred: Per Share DividendPreferred: Per Share Dividend
• Stated as percentage of par value or as specified amount
• How much does one share of $4 preferred stock with a $50 par value receives when dividends are declared and paid? $4
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Cumulative & Noncumulative Cumulative & Noncumulative Preferred StockPreferred Stock
• Cumulative preferred stock - accumulates dividends each year until the dividends are paid– Dividends in arrears - dividends passed or not
paid– Dividends in arrears - not a liability
• Noncumulative preferred stock – dividends not paid do not accumulated from one year to the next
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S13-9S13-9
1. Preferred stock is cumulative because it is not specifically designated as noncumulative
2. Preferred dividend per year: 5% x $10 x 4,000 = $2,000
2005: Preferred stockholders get $2,000 Common stockholders get the rest,
$13,000
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S13-9S13-9
3. 2006: Dividends in arrears = $2,0002007: Dividends in arrears = $4,0002008: Preferred stockholders get $6,000(2 years in arrears and current year)Common stockholders get the rest, $9,000
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E13-21E13-21
1. Preferred stock is cumulative because it is not specifically designated as noncumulative
2. Preferred dividend per year: 8% x $10 x 20,000 = $16,000
2007: Preferred stockholders get $10,000 (Note: Dividends in arrears of $6,000)
Common stockholders get nothing
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E13-21E13-21
3. 2008:Preferred stockholders get:Dividends in arrears $6,000Current year’s 16,000 Total to preferred stockholders $22,000
Common stockholders get the rest, $28,000
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Objective 5Objective 5
Use different stock values in decision making
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Different Values of StockDifferent Values of Stock
• Market value - current selling price
• Book value - equity a stockholder has in net assets of the corporation
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Book Value per ShareBook Value per Share
Book value common =
(Stockholders’ equity – Preferred Equity)
÷ Number of shares outstanding
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E13-23E13-23
Book value per share on common:
Total stockholders’ equity $277,000
Attributable to preferred:
$50 par x 1,000 shares(50,000)
Attributable to common $227,000
Per share:
$227,000 / 5,000 = $45.40
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E13-24E13-24
Book value per share on common:Total stockholders’ equity $277,000Attributable to preferred:
Dividends in arrears ($50,000 x 6% x 3 years) (9,000)$50 par x 1,000 shares(50,000)
Attributable to common $218,000Per share: $218,000 / 5,000 = $43.60
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Objective 6Objective 6
Evaluate return on assets and return on stockholders’ equity
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Rate of Return on Total AssetsRate of Return on Total AssetsE13-25E13-25
Net Income + Interest Expense Average Total Assets
$18,000,000 + 2,400,000($326,000,000 + 317,000,000) / 2
$20,400,000$321,500,000
.063
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Rate of Return on Common Rate of Return on Common Stockholders’ Equity - E13-25Stockholders’ Equity - E13-25
Net Income – Preferred DividendsAverage Common Stockholders’ Equity
$18,000,000 – ($2x 100,000)($184,000,000 + $176,000,000) / 2
$17,800,000$180,000,000
.099
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Objective 7Objective 7
Account for the income tax of a corporation
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Income TaxesIncome Taxes
Income tax expense =Income before income tax (from income statement)× Income tax rate
Income tax payable =Taxable income (from the tax return filed with IRS)× Income tax rate
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Income TaxesIncome Taxes
• Deferred tax liability = difference between income tax expense and income tax payable for any one year
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E13-26E13-26
CREDITDEBITREFDESCRIPTIONDATE
GENERAL JOURNAL
(in millions)Income Tax Expense(400 x 37.5%) 150
Income Tax Payable(344 x 37.5%) 129Deferred Tax Liability 21
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E13-26E13-26
$ 21 Deferred tax liability
Long-term liabilities:
$ 129 Income tax payable
Current liabilities:
BALANCE SHEET:
$ 250Net income
150Income tax expense
$400Income before income tax
INCOME STATEMENT:
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End of Chapter 13End of Chapter 13