Kế toán, kiểm toán - Additional stockholders’ equity transactions and income disclosures

Additional Stockholders’ Equity Transactions and Income DisclosuresRetained EarningsCumulative net income of past years minus net losses and dividends declared during those yearsPrimary factors affecting retained earningsNet income or lossRestrictions of retained earningsPrior period adjustmentsDividendsRestrictions on Retained EarningsTells the financial statement reader that company may not pay out this part of retained earnings as dividendsRequired restrictionsTo comply with legal or contractual limits on dividend distributionVoluntaryTo show reasons why management wishes to restrict dividendsPrior Period AdjustmentAn error in preparing financial statements in one accounting period not discovered until a later periodTreat correction of error, if material, as adjustment of beginning retained earningsAdjusts affected balance sheet accountAdjusts beginning retained earningsDividendsDistribution of cash, stock, or other corporate assets to stockholdersDeclaration decreases retained earningsWhen board of directors takes formal action, declaration, dividend immediately becomes liabilityCash DividendDate of declarationIncrease Dividends - a nominal account closed to Retained EarningsIncrease Dividends PayableDate of recordNo entryDetermines persons who will receive dividendStock sold after is sold ex-dividendCash DividendDate of paymentDecreases CashDecreases Dividends PayableCumulative preferred in arrearsFirst must pay arrearagesThen pay current period preferredThen common is entitled to dividendsStock DividendsIssuance of additional shares of authorized stockReasonsNeed to conserve cashGive measure of company’s successIncrease permanent capitalizationDecrease market priceSmall Stock DividendInvolves less than 20-25% of previously outstanding sharesTransfer from retained earnings to paid-in capital an amount equal to market value of shares Reasoning is that small stock dividends do not decrease market value significantlySmall Stock DividendDate of declarationIncrease Stock Dividends , a nominal account closed to Retained Earnings, for market valueIncrease Stock Dividends to be Issued for par valueIncrease Paid-in Capital-Excess Over Par for differenceSmall Stock DividendStock Dividends to be Issued appears in paid-in capitalDate of paymentDecrease Stock Dividends to be IssuedIncrease StockLarge Stock DividendInvolves more than 20-25% of previously outstanding sharesTransfer from retained earnings to paid-in capital an amount equal to par value of sharesReasoning is that large stock dividend should decrease market value Large Stock DividendDate of declarationIncrease Stock Dividends , a nominal account closed to Retained Earnings, for par valueIncrease Stock Dividends to be Issued for par valueStock Dividends to be Issued appears in paid-in capitalLarge Stock DividendDate of paymentDecrease Stock Dividends to be IssuedIncrease StockEffect of Stock DividendSmall stock dividendIncrease paid-in capital by market value of shares issued in dividendDecreases retained earnings by market value of shares issued in dividendEffect of Stock DividendLarge stock dividendIncreases paid-in capital by par value of shares issued in dividendDecreases retained earnings by par value of shares issued in dividendCapitalizes (makes permanent) some of retained earningsStock SplitDecreases the par or stated value per share and increases number of shares issued proportionallyTotal paid-in capital remains the sameTotal retained earnings remains the sameMarket value of shares decreases proportionallyTreasury StockShares of own stock reacquired by corporationAcquisition reduces assets and stockholders’ equityShown as deduction from stockholders’ equityTreasury StockAcquisitionIncreases contra owners’ equity account Treasury Stock by costDecreases CashTreasury StockReissuance above costIncreases cash by proceedsDecreases Treasury Stock by costIncreases Paid-in Capital from Treasury Stock Transactions by differenceTreasury StockReissuance below costIncreases cash by proceedsDecreases Treasury Stock by costDecreases Paid-in Capital from Treasury Stock Transactions by differenceTreasury StockReissuance below costIf Paid-in Capital from Treasury Stock Transactions does not existdecrease any paid-in capital from same class of stockretained earningsBook Value of Common StockDivide stockholders’ equity available to common stockholders by number of shares outstandingWhen more than one class of stock is outstandingsubtract liquidation claims of noncommon from total stockholders’ equity to determine equity available to commonPresentation of Stockholders’ EquityPaid-in capital Stock Common stock, $1 par, 10,000 sh authorized, 8,000 sh issued $ 8,000 Additional paid-in capital Paid-in capital-excess over par, common 24,000 Total paid-in capital $32,000Presentation of Stockholders’ EquityRetained earnings Restricted for plant expansion $10,000 Unrestricted 50,000 Total retained earnings 60,000Total paid-in capital and R.E. $92,000Deduct: Treasury stock 1,000Total stockholders’ equity $91,000Quality of Income InformationAccounting methods and estimates used to prepare financial statementsNumber and size of nonrecurring revenue and expense items on income statementIntraperiod Tax AllocationAssigning the tax consequences of nonrecurring items to the itemAssume a nonrecurring loss of $40,000 with a tax rate of 30% Loss $40,000 Tax savings due to loss 12,000 Loss net of tax $28,000Continuing OperationsFinancial statement users want to know income from continuing operationsIt is important number for predicting future earningsNonrecurring Income Statement ItemsDiscontinued operationsExtraordinary itemsCumulative effect of change in accounting principleDiscontinued OperationsA line of business or class of customer may qualify as discontinued segmentWhen management decides to dispose of a segment, results for segment must be reported separatelyDiscontinued OperationsTwo elements reported for discontinued segmentOperating income or loss for periodGain or loss on disposal of the segmentEach element reported net of taxExtraordinary ItemsGains and losses that are both unusual and infrequentMust consider the environment in which firm operatesReported net of taxExamples of Extraordinary ItemsUninsured losses from earthquakes and firesGains or losses from early retirement of debtGains and losses from passing a new lawGains and losses from foreign governments taking business propertyChanges in Accounting PrincipleConsistency principle states should use same accounting principles from period to period Change permitted when it improves reporting Reported net of taxChanges in Accounting PrincipleChanges in principle often would have changed prior periods’ expensesTotal change in net income for prior periods is cumulative effect of a change in accounting principleReporting Earnings Per ShareIncome from continuing operationsDiscontinued operationsExtraordinary itemsCumulative effect of change in accounting principleNet incomeEarnings Per ShareExpresses net income on a per-common-share basisUnder FASB Statement No. 128 presentation depends on whether simple or complex capital structureSimple capital structure - no debt or equity that could dilute EPSComplex capital structure - dilutive securitiesEPS - Weighted Average Common SharesFor total year, sum of Number of shares outstanding times fraction of year outstandingUsed as denominator in EPS calculationsEPS - Simple Capital StructureNet income minus dividends on preferred stockdivided byWeighted average number of common shares outstandingComplex Capital StructureConvertible debt or equity securities that have potential to dilute (decrease) EPSPresent two earnings per share figuresBasic earnings per shareEPS based on weighted average common sharesDiluted earnings per shareAssumes all dilutive securities convertedEPS ExampleNet income $48,000Stock10% Convertible Preferred, $100 par, 1,000 shares issued and outstanding, convertible into 7,000 commonCommon, $1 par, Issued and outstanding 1/1 to 4/1, 16,000 sharesIssued and outstanding 4/1 to 12/31, 20,000 sharesEPS ExampleWeighted average common shares outstanding computation16,000 x 1/4 = 4,00020,000 x 3/4 = 15,000Weighted average common shares outstanding19,000 sharesBasic EPS ComputationPreferred dividends1,000 x ($100 x 0.10) = $10,000Net income available to common$48,000 - $10,000 = $38,000Basic EPS$38,000 / 19,000 = $2.00 per shareDiluted Earnings Per ShareAssume convertible preferred converted into common at beginning of yearWeighted average common shares19,000 + 7,000 = 26,000Net income available to common$48,000 - $0 = $48,000Diluted EPS$48,000 / 26,000 = $1.85 per shareAnalyzing InformationMajor differences in capital structure between companiesNumber of shares issued and outstandingTreasury stockMarket valueDividend yieldROAEPS and P/E ratio