Kế toán tài chính - Chương 15: Stockholders’ equity

C H A P T E R 15STOCKHOLDERS’ EQUITYIntermediate Accounting13th EditionKieso, 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 stock splits.Indicate how to present and analyze stockholders’ equity.Learning ObjectivesIssuance of stockReacquisition of sharesThe Corporate FormCorporate CapitalPreferred StockDividend PolicyPresentation and AnalysisState corporate 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 stockholders’ 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 represents basic ownership 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 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.Additional Paid-in CapitalLO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalBE15-1: KC Corporation issued 300 shares of $10 par value common stock for $4,500. Prepare KC’s journal entry.Cash 4,500 Common stock (300 x $10) 3,000Journal entry: Additional paid-in capital 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.LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalSome states require that no-par stock have a stated value. BE15-2: Swarten Corporation issued 600 shares of no-par common stock for $8,200. Prepare Swarten’s journal entry if (a) the stock has no stated value, and (b) the stock has a stated value of $2 per share.Cash 8,200 Common stock 8,200Journal entry:LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalCash 8,200 Common stock (600 x $2) 1,200 Additional paid-in capital 7,000a.b.Stock Issued with Other SecuritiesTwo methods of allocating proceeds:the proportional method andthe incremental method.LO 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. LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalProportional MethodLO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalCash 13,500 Preferred stock (100 x $50) 5,000Journal entry (Proportional): Additional paid-in capital-preferred 3,100 Common stock (300 x $10) 3,000 Additional paid-in capital-common 2,400BE15-4: 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 the preferred stock is unknown. LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalIncremental MethodLO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalCash 13,500 Preferred stock (100 x $50) 5,000Journal entry (Incremental): Additional paid-in capital-preferred 2,500 Common stock (300 x $10) 3,000 Additional paid-in capital-common 3,000BE15-4: (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 the preferred stock is unknown. Stock Issued in Noncash TransactionsThe general rule: Companies should record stock issued for services or property other than cash at either 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 CapitalLO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalLand 80,000 Common stock (24,000 x $2) 48,000April 1: Issued 24,000 shares of common stock for land. The asking price of the land was $90,000; the fair market value of the land was $80,000. Additional paid-in capital 32,000E15-2: Kathy Crystal Corporation was organized on January 1, 2010. It is authorized to issue 500,000 shares of no par common stock with a stated value of $2 per share. Prepare the journal entry to record the following.LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalOrganization expense 50,000 Common stock (10,000 x $2) 20,000Aug. 1: Issued 10,000 shares of common stock to attorneys in payment of their bill of $50,000 for services rendered in helping the company organize. Additional paid-in capital 30,000E15-2: Kathy Crystal Corporation was organized on January 1, 2010. It is authorized to issue 500,000 shares of no par common stock with a stated value of $2 per share. Prepare the journal entry to record the following.Costs 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 (additional paid-in capital).LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalReacquisition of SharesLO 4 Describe the accounting for treasury stock.Corporations purchase their outstanding stock:To provide tax-efficient distributions of excess cash to shareholders.To increase earnings per share and return on equity.To provide stock for employee stock compensation contracts or to meet potential merger needs.To thwart takeover attempts or to reduce the number of stockholders.To 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.Corporate CapitalLO 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 15-4Corporate 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, 2010, Pacific acquires 10,000 shares of its stock at $11 per share.LO 4 Describe the accounting for treasury stock.Treasury stock 110,000 Cash 110,000Corporate CapitalIllustration: Stockholders’ equity section for Pacific after purchase of the treasury stock.LO 4 Describe the accounting for treasury stock.Illustration 15-5Sale of Treasury StockAbove Cost Below CostBoth increase total assets and stockholders’ equity. Corporate CapitalLO 4 Describe the accounting for treasury stock.Corporate CapitalCash 15,000 Treasury stock 11,000 Paid-in capital from treasury stock 4,000Illustration: Pacific acquired 10,000 shares of its treasury stock at $11 per share. It now sells 1,000 shares at $15 per share on March 10. Pacific records the entry as follows.LO 4 Describe the accounting for treasury stock.Corporate CapitalCash 8,000Paid-in capital from treasury stock 3,000 Treasury stock 11,000Illustration: If Pacific sells an additional 1,000 shares of treasury stock on March 21 at $8 per share, it records the sale as follows.LO 4 Describe the accounting for treasury stock.Corporate CapitalCash 8,000Paid-in capital from treasury stock 1,000Retained earnings 2,000 Treasury stock 11,000Illustration: Assume that Pacific sells an additional 1,000 shares at $8 per share on April 10.LO 4 Describe the accounting for treasury stock.Illustration 15-6Retiring Treasury StockThis decision 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 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 StockCumulativeParticipatingConvertibleCallableRedeemableLO 5 Explain the accounting for and reporting of preferred stock.Preferred StockFeatures of Preferred StockA corporation may attach whatever preferences or restrictions, as long as it does not violate its state incorporation law.Accounting for preferred stock at issuance is similar to that for common stock.Cash 120,000 Preferred stock 100,000 Paid-in capital in excess of par 20,000Illustration: Bishop Co. issues 10,000 shares of $10 par value preferred stock for $12 cash per share. Bishop records the issuance as follows:LO 5 Explain the accounting for and reporting of preferred stock.Preferred StockLO 6 Describe the policies used in distributing dividends.Dividend PolicyDividend distributions generally are based on accumulated profits (retained earnings).Few 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.Types of DividendsDividends require information concerning three dates:Date of declarationDate of recordDate of paymentLiquidating dividends.Stock dividends.Cash DividendsBoard of directors vote on the declaration of cash dividends.A declared cash dividend is a liability.Companies do not declare or pay cash dividends on treasury stock.LO 7 Identify the various forms of dividend distributions.Types of DividendsIllustration: What would be the journal entries made by a corporation that declared a $50,000 cash dividend on March 10, payable on April 6 to shareholders of record on March 25?March 10 (Declaration Date)Retained earnings50,000Dividends payable50,000March 25 (Date of Record) April 6 (Payment Date)Dividends payable50,000Cash50,000DebitCreditLO 7 Identify the various forms of dividend distributions.Cash DividendNo entryProperty 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.Types of DividendsIllustration: A dividend is declared Jan. 5th and paid Jan. 25th, in bonds held as an investment; the bonds have a book value of $100,000 and a fair market value of $135,000.Date of DeclarationInvestment in bonds 35,000Gain on investment35,000andDate of IssuanceProperty dividend payable135,000Investment in bonds135,000DebitCreditRetained earnings135,000Property dividend payable135,000LO 7 Identify the various forms of dividend distributions.Property DividendLiquidating DividendsAny dividend not based on earnings reduces corporate paid-in capital.LO 7 Identify the various forms of dividend distributions.Types of DividendsJune 1 (Payment Date)April 20 (Declaration Date)Retained earnings 375,000Additional paid-in capital125,000DebitCreditDividends payable500,000Dividends payable 500,000Cash500,000BE15-12: Graves Mining Company declared, on April 20, a dividend of $500,000 payable on June 1. Of this amount, $125,000 is a return of capital. Prepare the April 20 and June 1 entries for Graves.LO 7 Identify the various forms of dividend distributions.Liquidating DividendStock DividendsIssuance of 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.Types of Dividends10% stock dividend is declaredRetained earnings 20,000Common stock dividend distributable500DebitCreditAdditional paid-in capital19,500Stock issuedCommon stock div. distributable 500Common stock500Illustration: HH Inc. has 5,000 shares issued and outstanding. The per share par value is $1, book value $32 and market value is $40.Stock DividendLO 8 Explain the accounting for small and large stock dividends, and for stock splits.Stock SplitTo reduce the market value of shares.No entry recorded for a stock split.Decrease par value and increased number of shares.Types of DividendsLO 8 Explain the accounting for small and large stock dividends, and for stock splits.2 for 1 Stock SplitNo Entry -- Disclosure that par is now $.50 and shares outstanding are 10,000.Stock DividendIllustration: HH Inc. has 5,000 shares issued and outstanding. The per share par value is $1, book value $32 and market value is $40.LO 8 Explain the accounting for small and large stock dividends, and for stock splits.Stock Split and Stock Dividend DifferentiatedIf the stock dividend is large, it has the same effect on market price as a stock split.A stock dividend of more than 20–25 percent of the number of shares previously outstanding is called a large stock dividend.With a large stock dividend, transfer from retained earnings to capital stock the par value of the stock issued.Types of DividendsLO 8 Explain the accounting for small and large stock dividends, and for stock splits.Illustration: HH Inc. has 5,000 shares issued and outstanding. The per share par value is $1, book value $32 and market value is $40.50% stock dividend is declaredRetained earnings 2,500Common stock dividend distributable2,500DebitCreditStock issuedCommon stock dividend distributable 2,500Common stock2,500Stock DividendLO 8 Explain the accounting for small and large stock dividends, and for stock splits.LO 9 Indicate how to present and analyze stockholders’ equity.Presentation and Analysis of Stockholders’ EquityPresentationBalance SheetIllustration 15-13LO 9 Indicate how to present and analyze stockholders’ equity.Presentation and Analysis of Stockholders’ EquityPresentation Statement of Stockholders’ EquityIllustration 15-14Ratio shows how many dollars of net income the company earned for each dollar invested by the owners.AnalysisNet income – Preferred dividendsAverage common stockholders’ equity Rate of Return on Common Stock Equity =Presentation and Analysis of Stockholders’ EquityLO 9 Indicate how to present and analyze stockholders’ equity.Presentation and Analysis of Stockholders’ 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 $2,550,000Illustration 15-15Solutions on notes pageIt is important to some investors that the payout be sufficiently high to provide a good yield on the stock.AnalysisCash dividendsPayout Ratio =Presentation and Analysis of Stockholders’ EquityLO 9 Indicate how to present and analyze stockholders’ equity.Net income – Preferred dividendsPresentation and Analysis of Stockholders’ EquityLO 9 Indicate how to present and analyze stockholders’ equity.Illustration: Troy Co. has cash dividends of $100,000 and net income of $500,000, and no preferred stock outstanding.Illustration 15-16Solutions on notes pageThe amount each share would receive if the company were liquidated on the basis of amounts reported on the balance sheet.AnalysisCommon stockholders’ equityBook Value Per Share =Presentation and Analysis of Stockholders’ EquityLO 9 Indicate how to present and analyze stockholders’ equity.Outstanding sharesPresentation and Analysis of Stockholders’ EquityLO 9 Indicate how to present and analyze stockholders’ equity.Illustration: Chen Corporation’s common stockholders’ equity is $1,000,000 and it has 100,000 shares of common stock outstanding.Illustration 15-17Solutions on notes pageMany 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 stockholders as well.The accounting for treasury stock retirements differs between iGAAP and U.S. GAAP.A major difference between iGAAP and U.S. GAAP relates to the account Revaluation Surplus. Revaluation surplus arises under iGAAP because companies are permitted to revalue their property, plant, and equipment to fair value under certain circumstances.Both iGAAP and U.S. GAAP consider the statement of stockholders’ equity a primary financial statement. However, under iGAAP a company has the option of preparing a statement of stockholders’ equity similar to U.S. GAAP or preparing a statement of recognized income and expense (SoRIE). The SoRIE reports the items that were charged directly to equity such as revaluation surplus and then adds the net income for the period to arrive at total recognized income and expense. In this situation, additional note disclosure is required to provide reconciliations of other equity items.LO 10 Explain the different types of preferred stock dividends and their effect on book value per share.Dividend PreferencesIllustration: Assume that in 2010, 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. 1. If the preferred stock is noncumulative and nonparticipating:Illustration 15A-1Solutions on notes pageLO 10 Explain the different types of preferred stock dividends and their effect on book value per share.Illustration: Assume that in 2010, 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. 2. If the preferred stock is cumulative and nonparticipating, and Mason Company did not pay dividends on the preferred stock in the preceding two years:Illustration 15A-2Solutions on notes pageLO 10 Explain the different types of preferred stock dividends and their effect on book value per share.3. If the preferred stock is noncumulative and is fully participating:Illustration 15A-3Solutions on notes pageLO 10 Explain the different types of preferred stock dividends and their effect on book value per share.Illustration: Assume that in 2010, 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. Illustration 15A-4Solutions on notes page4. If the preferred stock is cumulative and is fully participating, and Mason Company did not pay dividends on the preferred stock in the preceding two years:LO 10 Explain the different types of preferred stock dividends and their effect on book value per share.Book Value Per ShareBook value per share is computed as net assets divided by outstanding shares 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.Assume that the same facts exist except that the 5 percent preferred is cumulative, participating up to 8 percent, and that dividends for three years before the current year are in arrears.Illustration 15A-6Copyright © 2009 John Wiley & Sons, Inc. All rights reserved. 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