Nguyên lý kế toán - Chapter 11: Reporting and interpreting stockholders’ equity

Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinChapter 11Reporting and Interpreting Stockholders’ EquityPowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Fred Phillips, Ph.D., CACorporate OwnershipThe major advantage of the corporate form of business is the ease of raising capital as both large and small investors can participate in corporate ownership.Simple to become an ownerEasy to transfer ownershipProvides limited liabilityBecause a corporation is a separate legal entity, it can Own assets. Incur liabilities. Sue and be sued. Enter into contracts.11-3 Voting rights. Dividends. Residual claims.StockholderBenefitsCorporate Ownership Preemptive rights.11-4Two primary sources of Stockholders’ EquityCommon Stock TransactionsContributed CapitalCommonStockAdditional Paid-in CapitalRetained Earnings 11-5Authorization, Issuance, and Repurchase of StockThe maximum number of shares of capital stock that can be issued to the public. Issued shares are authorized shares of stock that have been distributed to stockholders.Unissued shares of stock are shares that have never been distributed to stockholders.UnissuedSharesTreasurySharesOutstandingSharesTreasury shares are issued shares that have been reacquired by the corporation.Outstanding shares are issued shares that are owned by stockholders.AuthorizedShares11-6Stock Issuance Initial public offering (IPO)The first time a corporation issues stock to the public.Seasoned new issueSubsequent issues of new stock to the public.National Beverageissues stock.11-7Repurchase of StockA corporation repurchases its stock to: Send a signal that the company believes its stock is undervalued. Obtain shares to reissue for the purchase of other companies. Obtain shares to reissue to employees as part of stock purchase or stock option plans.Treasury Stock11-8Repurchase of StockNational Beverage repurchases its own stock (Treasury stock)StockholdersStock options allow employees to purchase stock from the corporation at a fraction of the stock’s market price.EmployeeEmployee compensation package includes salary plus stock options.11-9Dividends on Common StockDeclared by board of directors.Not legally required.Creates liability at declaration.Requires sufficient Retained Earnings and Cash.11-10Dividends Dates11-11No change in total stockholders’ equity.No change inpar values.All stockholders retain same percentage ownership.Stock DividendsCorporations issue stock dividends to: Remind stockholders of the accumulating wealth in the company. Reduce the market price per share of stock. Signal that the company expects strong financial performance in the future.Distribution of additional sharesof stock to stockholders.11-12Record at currentmarket valueof stock.Record atpar valueof stock.SmallLargeThe journal entry moves an amount fromRetained Earnings to other equity accounts.Stock DividendsStock dividend > 20 – 25%Stock dividend < 20 – 25%11-13Preferred Stock Dividends Current Dividend Preference: The current preferred dividends must be paid before paying any dividends to common stock.Cumulative Dividend Preference: Any unpaid dividends from previous years (dividends in arrears) must be paid before common dividends are paid.If the preferred stock is noncumulative, any dividends not declared in previous years are lost permanently. 11-14Retained EarningsTotal cumulative amount of reported net income less any net losses and dividends declared since the company started operating.Baker Company incurred a loss of $120,000 in 2009 thatresulted in an Accumulated Deficit in Retained Earnings.11-15Net Income Average Number of Common Shares OutstandingEPS =National Beverage’s income for 2008 was $22,500,000 and the average number of shares outstanding during the year was 45,900,000.Earnings per share is probably the single most widely watched financial ratio.Earnings Per Share (EPS) $22,500,000 45,900,000 SharesEPS = = $0.49 per share11-16Return on Equity (ROE) Net Income Average Stockholders’ EquityROE =National Beverage’s income for 2008 was $22,500,000 and the average Stockholders’ Equity was $151,000,000. Return on equity is the amount earned for each dollar invested by stockholders. $22,500,000 $151,000,000ROE = = 14.9 percent11-17Price/Earnings (P/E) RatioCurrent Stock Price (per share) Earnings Per Share (annual)P/E =The P/E ratio is a measure of the value that investors place on a company’s common stock.National Beverage’s stock price was $7.74 whenthe company reported its 2008 EPS of $0.49. $ 7.74 $ 0.49P/E = = 15.811-18End of Chapter 11