Stockholders' Equity - No.3.ppt
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Transcript of Stockholders' Equity - No.3.ppt
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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&le
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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