Kế toán, kiểm toán - Stockholders’ equity

Prepared by Coby Harmon University of California, Santa BarbaraIntermediate AccountingIntermediate Accounting14th Edition15Stockholders’ EquityKieso, Weygandt, and Warfield Discuss the characteristics of the corporate form of organization.Identify the key components of stockholders’ equity.Explain the accounting procedures for issuing shares of stock.Describe the accounting for treasury stock.Explain the accounting for and reporting of preferred stock.Describe the policies used in distributing dividends.Identify the various forms of dividend distributions.Explain the accounting for small and large stock dividends, and for share splits.Indicate how to present and analyze stockholders’ equity.Learning ObjectivesIssuance of stockReacquisition of sharesThe Corporate FormEquityPreferred StockDividend PolicyPresentation and AnalysisCorporate lawCapital stock or share systemVariety of ownership interestsFeaturesAccounting for and reporting preferred stockFinancial condition and dividend distributionsTypes of dividendsStock splitDisclosure of restrictionsPresentationAnalysisStockholders’ EquityThree primary forms of business organizationThe Corporate Form of OrganizationProprietorshipPartnershipCorporationLO 1 Discuss the characteristics of the corporate form of organization.Special characteristics of the corporate form:Influence of state corporate law.Use of capital stock or share system.Development of a variety of ownership interests.State Corporate LawThe Corporate Form of OrganizationLO 1 Discuss the characteristics of the corporate form of organization.Corporation must submit articles of incorporation to the state in which incorporation is desired.General Motors - incorporated in Delaware.U.S. Steel - incorporated in New Jersey.Accounting for stockholder’s equity follows the provisions of each states business incorporation act. Capital Stock or Share SystemThe Corporate Form of OrganizationLO 1 Discuss the characteristics of the corporate form of organization.In the absence of restrictive provisions, each share carries the following rights:To share proportionately in profits and losses.To share proportionately in management (the right to vote for directors).To share proportionately in assets upon liquidation.To share proportionately in any new issues of stock of the same class—called the preemptive right.Variety of Ownership InterestsThe Corporate Form of OrganizationLO 1 Discuss the characteristics of the corporate form of organization.Common stock represent the residual corporate interest.Bears ultimate risks of loss.Receives the benefits of success.Not guaranteed dividends nor assets upon dissolution.Preferred stock is created by contract, when stockholders’ sacrifice certain rights in return for other rights or privileges, usually dividend preference. Contributed CapitalRetained EarningsAccountAdditional Paid-in CapitalAccountLess:Treasury StockAccountTwo Primary Sources of EquityCorporate CapitalLO 2 Identify the key components of stockholders’ equity.Common StockAccountPreferred StockAccountAssets – Liabilities = EquityIssuance of StockAccounting problems: Par value stock.No-par stock.Stock issued in combination with other securities.Stock issued in noncash transactions.Costs of issuing stock.LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalShares authorized - Shares sold - Shares issuedPar Value StockLow par values help companies avoid a contingent liability. Corporations maintain accounts for:Preferred Stock or Common Stock.Paid-in Capital in Excess of Par (APIC)Corporate CapitalLO 3 Explain the accounting procedures for issuing shares of stock.BE15-1: Blue Diamond Corporation issued 300 shares of $10 par value common stock for $4,500. Prepare Blue Diamond’s journal entry.Cash 4,500 Common stock (300 x $10) 3,000Journal entry: Paid-in capital in excess of par 1,500LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalNo-Par StockReasons for issuance:Avoids contingent liability.Avoids confusion over recording par value versus fair market value.A major disadvantage of no-par stock is that some states levy a high tax on these issues. In addition, in some states the total issue price for no-par stock may be considered legal capital, which could reduce the flexibility in paying dividends. LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalIllustration: Video Electronics Corporation is organized with 10,000 shares authorized without par value. If Video Electronics issues 500 shares for cash at $10 per share, it makes the following entry.Cash 5,000 Common stock 5,000LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalIllustration: Some states require that no-par stock have a stated value. If a company issued 1,000 of the shares with a $5 stated value at $15 per share for cash, it makes the following entry.Cash 15,000 Common stock 5,000 Paid-in capital in excess of par 10,000LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalStock Issued with Other SecuritiesTwo methods of allocating proceeds:Proportional method.Incremental method.LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalLO 3Proportional MethodBE15-4: Ravonette Corporation issued 300 shares of $10 par value common stock and 100 shares of $50 par value preferred stock for a lump sum of $13,500. The common stock has a market value of $20 per share, and the preferred stock has a market value of $90 per share. Corporate CapitalCash 13,500 Preferred stock (100 x $50) 5,000Journal entry (Proportional): Paid-in capital in excess of par - preferred 3,100 Common stock (300 x $10) 3,000 Paid-in capital in excess of par - common 2,400LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalBE15-4: Ravonette Corporation issued 300 shares of $10 par value common stock and 100 shares of $50 par value preferred stock for a lump sum of $13,500. The common stock has a market value of $20 per share, and the preferred stock has a market value of $90 per share. BE15-4 (Variation): Ravonette Corporation issued 300 shares of $10 par value common stock and 100 shares of $50 par value preferred stock for a lump sum of $13,500. The common stock has a market value of $20 per share, and the value of preferred stock is unknown. Incremental MethodLO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalCash 13,500 Preferred stock (100 x $50) 5,000Journal entry (Incremental): Paid-in capital in excess of par - preferred 2,500 Common stock (300 x $10) 3,000 Paid-in capital in excess of par - common 3,000LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalBE15-4 (Variation): Ravonette Corporation issued 300 shares of $10 par value common stock and 100 shares of $50 par value preferred stock for a lump sum of $13,500. The common stock has a market value of $20 per share, and the value of preferred stock is unknown. Stock Issued in Noncash TransactionsThe general rule: Companies should record stock issued for services or property other than cash at the fair value of the stock issued or fair value of the noncash consideration received,Whichever is more clearly determinable.LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalIllustration: The following series of transactions illustrates the procedure for recording the issuance of 10,000 shares of $10 par value common stock for a patent for Marlowe Company, in various circumstances. 1. Marlowe cannot readily determine the fair value of the patent, but it knows the fair value of the stock is $140,000.Patents 140,000 Common stock 100,000 Paid-in capital in excess of par 40,000LO 3 Explain the accounting procedures for issuing shares of stock.Corporate Capital2. Marlowe cannot readily determine the fair value of the stock, but it determines the fair value of the patent is $150,000.Patents 150,000 Common stock 100,000 Paid-in capital in excess of par 50,000LO 3 Explain the accounting procedures for issuing shares of stock.Corporate Capital3. Marlowe cannot readily determine the fair value of the stock nor the fair value of the patent. An independent consultant values the patent at $125,000 based on discounted expected cash flows.Patents 125,000 Common stock 100,000 Paid-in capital in excess of par 25,000LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalCosts of Issuing StockDirect costs incurred to sell stock, such as underwriting costs, accounting and legal fees, printing costs, andtaxes, should be reported as a reduction of the amounts paid in (Paid-in Capital in Excess of Par).LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalReacquisition of StockLO 4 Describe the accounting for treasury stock.Corporations purchase their outstanding stock to:Provide tax-efficient distributions of excess cash to stockholders.Increase earnings per share and return on equity.Provide stock for employee stock compensation contracts or to meet potential merger needs.Thwart takeover attempts or to reduce the number of stockholders.Make a market in the stock.Corporate CapitalPurchase of Treasury StockTwo acceptable methods: Cost method (more widely used). Par or Stated value method. Treasury stock reduces stockholders’ equity.LO 4 Describe the accounting for treasury stock.Corporate CapitalIllustration: Pacific Company issued 100,000 shares of $1 par value common stock at a price of $10 per share. In addition, it has retained earnings of $300,000. LO 4 Describe the accounting for treasury stock.Illustration 15-3Corporate CapitalIllustration: Pacific Company issued 100,000 shares of $1 par value common stock at a price of $10 per share. In addition, it has retained earnings of $300,000. On January 20, 2012, Pacific acquires 10,000 of its shares at $11 per share. Pacific records the reacquisition as follows.Treasury Stock 110,000 Cash 110,000Corporate CapitalLO 4 Describe the accounting for treasury stock.Illustration 15-4Illustration: The stockholders’ equity section for Pacific after purchase of the treasury stock.Corporate CapitalLO 4 Describe the accounting for treasury stock.Sale of Treasury StockAbove Cost Below CostBoth increase total assets and stockholders’ equity. Corporate CapitalLO 4 Describe the accounting for treasury stock.Sale of Treasury Stock above Cost. Pacific acquired 10,000 treasury share at $11 per share. It now sells 1,000 shares at $15 per share on March 10. Pacific records the entry as follows.Cash 15,000 Treasury Stock 11,000 Paid-in Capital from Treasury Stock 4,000Corporate CapitalLO 4 Describe the accounting for treasury stock.Sale of Treasury Stock below Cost. Pacific sells an additional 1,000 treasury shares on March 21 at $8 per share, it records the sale as follows.Cash 8,000Paid-in Capital from Treasury Stock 3,000 Treasury Stock 11,000Corporate CapitalLO 4 Describe the accounting for treasury stock.Illustration: Assume that Pacific sells an additional 1,000 shares at $8 per share on April 10.Illustration 15-5Cash 8,000Paid-in Capital from Treasury Stock 1,000Retained Earnings 2,000 Treasury Stock 11,000Corporate CapitalLO 4 Describe the accounting for treasury stock.Retiring Treasury StockDecision results in cancellation of the treasury stock and a reduction in the number of shares of issued stock.Corporate CapitalLO 4 Describe the accounting for treasury stock.Features often associated with preferred stock.Preference as to dividends.Preference as to assets in the event of liquidation.Convertible into common stock.Callable at the option of the corporation.Nonvoting.LO 5 Explain the accounting for and reporting of preferred stock.Preferred StockCumulativeParticipatingConvertibleCallableRedeemablePreferred StockFeatures of Preferred StockA corporation may attach whatever preferences or restrictions, as long as it does not violate itsstate incorporation law.The accounting for preferred stock at issuance is similar to that for common stock.LO 5 Explain the accounting for and reporting of preferred stock.Illustration: Bishop Co. issues 10,000 shares of $10 par value preferred stock for $12 cash per share. Bishop records the issuance as follows:Preferred StockCash 120,000 Preferred stock 100,000 Paid-in capital in excess of par 20,000LO 5 Explain the accounting for and reporting of preferred stock.LO 6 Describe the policies used in distributing dividends.Dividend PolicyFew companies pay dividends in amounts equal to their legally available retained earnings. Why?Maintain agreements with creditors.Meet state incorporation requirements.To finance growth or expansion.To smooth out dividend payments.To build up a cushion against possible losses.Cash dividends.Property dividends.LO 7 Identify the various forms of dividend distributions.All dividends, except for stock dividends, reduce the total stockholders’ equity in the corporation.Liquidating dividends.Stock dividends.Types of DividendsDividend PolicyCash DividendsBoard of directors vote on the declaration of cash dividends.A declared cash dividend is a liability.LO 7 Identify the various forms of dividend distributions.Three dates:Date of declarationDate of recordDate of paymentCompanies do not declare or pay cash dividends on treasury stock.Dividend PolicyLO 7 Identify the various forms of dividend distributions.Illustration: Roadway Freight Corp. on June 10 declared a cash dividend of 50 cents a share on 1.8 million shares payable July 16 to all stockholders of record June 24.At date of declaration (June 10) Retained Earnings 900,000 Dividends Payable 900,000At date of record (June 24) No entryAt date of payment (July 16) Dividends Payable 900,000 Cash 900,000Dividend PolicyProperty DividendsDividends payable in assets other than cash.Restate at fair value the property it will distribute, recognizing any gain or loss.LO 7 Identify the various forms of dividend distributions.Dividend PolicyLO 7 Identify the various forms of dividend distributions.Illustration: Trendler, Inc. transferred to stockholders some of its equity investments costing $1,250,000 by declaring a property dividend on December 28, 2011, to be distributed on January 30, 2012, to stockholders of record on January 15, 2012. At the date of declaration, the securities have a market value of $2,000,000. Trendler makes the following entries.At date of declaration (December 28, 2011)Equity Investments 750,000 Unrealized Holding Gain or Loss—Income 750,000Retained Earnings 2,000,000 Property Dividends Payable 2,000,000Dividend PolicyLO 7 Identify the various forms of dividend distributions.At date of distribution (January 30, 2012)Dividend PolicyProperty Dividends Payable 2,000,000 Equity Investments 2,000,000Illustration: Trendler, Inc. transferred to stockholders some of its equity investments costing $1,250,000 by declaring a property dividend on December 28, 2011, to be distributed on January 30, 2012, to stockholders of record on January 15, 2012. At the date of declaration, the securities have a market value of $2,000,000. Trendler makes the following entries.Liquidating DividendsAny dividend not based on earnings reduces corporate paid-in capital.LO 7 Identify the various forms of dividend distributions.Dividend PolicyLO 7 Identify the various forms of dividend distributions.Illustration: McChesney Mines Inc. issued a “dividend” to its common stockholders of $1,200,000. The cash dividend announcement noted that stockholders should consider $900,000 as income and the remainder a return of capital. McChesney Mines records the dividend as follows.Date of declaration Retained Earnings 900,000 Paid-in capital in excess of par-common 300,000 Dividends Payable 1,200,000Dividend PolicyLO 7 Identify the various forms of dividend distributions.Date of payment Dividends Payable 1,200,000 Cash 1,200,000Dividend PolicyIllustration: McChesney Mines Inc. issued a “dividend” to its common stockholders of $1,200,000. The cash dividend announcement noted that stockholders should consider $900,000 as income and the remainder a return of capital. McChesney Mines records the dividend as follows.Stock DividendsIssuance by a company of its own stock to stockholders on a pro rata basis, without receiving any consideration.When stock dividend is less than 20–25 percent of the common shares outstanding, company transfers fair market value from retained earnings (small stock dividend).LO 8 Explain the accounting for small and large stock dividends, and for stock splits.Dividend PolicyIllustration: Vine Corporation has outstanding 1,000 shares of $100 par value common stock and retained earnings of $50,000. If Vine declares a 10 percent stock dividend, it issues 100 additional shares to current stockholders. If the fair value of the stock at the time of the stock dividend is $130 per share, the entry is:Date of declarationRetained Earnings 13,000 Common stock dividend distributable 10,000 Paid-in capital in excess of par - common 3,000Dividend PolicyLO 8 Explain the accounting for small and large stock dividends, and for stock splits.Date of distributionCommon stock dividend distributable 10,000 Common stock 10,000Dividend PolicyLO 8 Explain the accounting for small and large stock dividends, and for stock splits.Illustration: Vine Corporation has outstanding 1,000 shares of $100 par value common stock and retained earnings of $50,000. If Vine declares a 10 percent stock dividend, it issues 100 additional shares to current stockholders. If the fair value of the stock at the time of the stock dividend is $130 per share, the entry is:To reduce the market value of stock.No entry recorded for a stock split.Decrease par value and increased number of shares.Stock SplitIllustration 15-9Dividend PolicyLO 8 Explain the accounting for small and large stock dividends, and for stock splits.Stock Split and Stock Dividend DifferentiatedDividend PolicyLarge Stock Dividend - 20–25 percent of the number of shares previously outstanding.Same effect on market price as a stock split.Par value transferred from retained earnings to contributed capital.LO 8 Explain the accounting for small and large stock dividends, and for stock splits.LO 8Illustration: Rockland Steel, Inc. declared a 30 percent share dividend on November 20, payable December 29 to stockholders of record December 12. At the date of declaration, 1,000,000 shares, par value $10, are outstanding and with a fair value of $200 per share. The entries are:Dividend PolicyLO 9 Indicate how to present and analyze stockholders’ equity.Presentation and Analysis of EquityIllustration 15-12PresentationIllustration 15-13Statement of Stockholders’ EquityPresentation and Analysis of EquityLO 9 Indicate how to present and analyze stockholders’ equity.Illustration: Gerber’s Inc. had net income of $360,000, declared and paid preferred dividends of $54,000, and average common stockholders’ equity of $2,550,000.Illustration 15-14LO 9Presentation and Analysis of EquityAnalysisRatio shows how many dollars of net income the company earned for each dollar invested by the owners.Illustration: Troy Co. has cash dividends of $100,000 and net income of $500,000, and no preferred stock outstanding.Illustration 15-15LO 9Presentation and Analysis of EquityIt is important to some investors that the payout be sufficiently high to provide a good yield on the stock.Illustration: Troy Co. has cash dividends of $100,000 and net income of $500,000, and no preferred stock outstanding.Illustration 15-16LO 9Presentation and Analysis of EquityAmount each share would receive if the company were liquidated on the basis of amounts reported on the balance sheet.Dividend PreferencesIllustration: In 2012, Mason Company is to distribute $50,000 as cash dividends, its outstanding common stock have a par value of $400,000, and its 6 percent preferred stock have a par value of $100,000.1. If the preferred stock are noncumulative and nonparticipating:Illustration 15A-1LO 10 Explain the different types of preferred stock dividends and their effect on book value per share.APPENDIX 15ADIVIDEND PREFERENCES AND BOOK VALUE PER SHAREIllustration: In 2012, Mason Company is to distribute $50,000 as cash dividends, its outstanding common stock has a par value of $400,000, and its 6 percent preferred stock has a par value of $100,000.If the preferred stock is cumulative and non-participating, and Mason Company did not pay dividends on the preferred stock in the preceding two years:Illustration 15A-2LO 10 Explain the different types of preferred stock dividends and their effect on book value per share.APPENDIX 15ADIVIDEND PREFERENCES AND BOOK VALUE PER SHAREIf the preferred stock is noncumulative and is fully participating:Illustration 15A-3LO 10APPENDIX 15ADIVIDEND PREFERENCES AND BOOK VALUE PER SHAREIllustration 15A-44. If the preferred stock is cumulative and fully participating, and Mason Company did not pay dividends on the preferred stock in the preceding two years:Illustration: In 2012, Mason Company is to distribute $50,000 as cash dividends, its outstanding common stock has a par value of $400,000, and its 6 percent preferred stock has a par value of $100,000.LO 10 Explain the different types of preferred stock dividends and their effect on book value per share.APPENDIX 15ADIVIDEND PREFERENCES AND BOOK VALUE PER SHAREBook Value Per ShareBook value per share is computed as net assets divided by outstanding stock at the end of the year. The computation becomes more complicated if a company has preferred stock.Illustration 15A-5LO 10 Explain the different types of preferred stock dividends and their effect on book value per share.APPENDIX 15ADIVIDEND PREFERENCES AND BOOK VALUE PER SHAREAssume that the same facts exist except that the 5 percent preferred stock is cumulative, participating up to 8 percent, and that dividends for three years before the current year are in arrears.Illustration 15A-6LO 10APPENDIX 15ADIVIDEND PREFERENCES AND BOOK VALUE PER SHARERELEVANT FACTSMany countries have different investor groups than the United States. For example, in Germany, financial institutions like banks are not only the major creditors but often are the largest shareholders as well. In the United States and the United Kingdom, many companies rely on substantial investment from private investors.The accounting for treasury share retirements differs between IFRS and GAAP. Under GAAP, a company has three options: (1) charge the excess of the cost of treasury shares over par value to retained earnings, (2) allocate the difference between paid-in capital and retained earnings, or (3) charge the entire amount to paid-in capital. Under IFRS, the excess may have to be charged to paid-in capital, depending on the original transaction related to the issuance of the shares.RELEVANT FACTSThe statement of changes in equity is usually referred to as the statement of stockholders’ equity under GAAP. Both IFRS and GAAP use the term retained earnings. However, IFRS relies on the term “reserve” as a dumping ground for other types of equity transactions, such as other comprehensive income items as well as various types of unusual transactions related to convertible debt and share option contracts. GAAP relies on the account Accumulated Other Comprehensive Income (Loss). Under IFRS, it is common to report “Revaluation Surplus” related to increases or decreases in items such as property, plant, and equipment; mineral resources; and intangible assets. The term surplus is generally not used in GAAP. In addition, unrealized gains on the above items are not reported under GAAP.Under IFRS, the amount of capital received in excess of par value would be credited to:Retained Earnings.Contributed Capital.Share Premium.Par value is not used under IFRS.IFRS SELF-TEST QUESTIONThe term reserves is used under IFRS with reference to all of the following except:gains and losses on revaluation of property, plant, and equipment.capital received in excess of the par value of issued shares.retained earnings.fair value differences.IFRS SELF-TEST QUESTIONUnder IFRS, a purchase by a company of its own shares results in:an increase in treasury shares.a decrease in assets.a decrease in equity.All of these are acceptable treatments.IFRS SELF-TEST QUESTIONCopyright © 2012 John Wiley & Sons, Inc. All rights reserved. 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