Nguyên lý kế toán - Chapter 18: Shareholders’ equity

Chapter 18Shareholders’ EquityThe Nature of Shareholders’ Equity Assets – Liabilities = Shareholders’ Equity Shareholders’ EquityPaid-in CapitalRetained EarningsAmounts earnedby corporationAmounts investedby shareholdersAccumulated OtherComprehensive IncomeOther gains and losses not included in net incomeSources ofShareholders’EquityNet AssetsAccumulated OtherComprehensive IncomeDeferred gains (losses) from derivatives. Gains (losses) from and amendments to postretirement benefit plans.Gains (losses) from foreign currency translations.Net holding gains (losses) on investments.Accumulated other comprehensive income includes four types of gains and losses not included in net income.There are 2 options for reporting comprehensive income created during the reporting period.The accumulated amount of comprehensive income is reported as a separate item of shareholders’ equity in the balance sheet.As an additional section of the income statement.As a separate statement immediately following the income statementAccumulated OtherComprehensive IncomeComprehensive income is reported periodically as it is created and also is reported as a cumulative amount. Board of directors appoint officers.The Model Business Corporation ActArticles of incorporationare filed with the state.Board of directors elected by shareholders.Shares of stock issued.State issues a corporate charter.CorporateCharter Nature and location of business activities. Number and classes of shares authorized.Issued shares are authorized shares of stock that have been sold.Unissued shares are authorized shares of stock that never have been sold.Authorized shares are the maximumnumber of shares of capital stock thatcan be sold to the public.Authorized, Issued, andOutstanding SharesAuthorizedSharesUnissuedSharesTreasurySharesOutstandingSharesRetiredSharesAuthorized, Issued, andOutstanding SharesCapital StockPar value stockDollar amount per share is stated in the corporate charter.Par value has no relationship to market value.No-par stockDollar amount per share is not designated in corporate charter.Corporations can assign a stated value per share (treated as if par value).Legal capital is . . .The portion of shareholders’ equity that must be contributed to the firm when stock is issued.The amount of capital, required by state law, that must remain invested in the business. Refers to par value, stated value, or full amount paid for no-par stock.Capital StockCommon stock is the basic voting stock of the corporation. It ranks after preferred stock for dividend and liquidation distribution. Dividends are determined by the board of directors.Dividend and liquidation preference overcommon stock.Generally does nothave voting rights.Usually has apar or stated value.May be convertible,callable, and/orredeemable.PreferredStockPreferred Stock Dividends Are usually stated as a percentage of the par or stated value. May be cumulative or noncumulative. May be partially participating, fully participating, or nonparticipating.Unpaid dividends must be paid in full before any distributions to common stock.Dividends in arrears are not liabilities, but the per share and aggregate amounts must be disclosed.Share Issue CostsShare issue costs reduce net proceedsfrom selling shares, resulting in a loweramount of additional paid-in capital.Share Buybacks A corporation might reacquire shares of its stock to . . . support the market price. increase earnings per share.distribute in stock option plans.issue as a stock dividend.use in mergers and acquisitions.thwart takeover attempts.Companies can account for the reacquired shares by retiring them or by holding them as treasury shares.Accounting for Treasury StockAcquisition of Treasury StockRecorded at cost to acquire.Resale of Treasury StockTreasury Stock credited for cost.Difference between cost and issuance price is (generally) recorded in paid-in capital—share repurchase.Treasury stock usually does not have:Voting rights.Dividend rights.Preemptive rights.Liquidation rights.Treasury stock is reported as an unallocated reductionof total Shareholders’ Equity.Retained EarningsRepresents the undistributed earnings of the company since its inception. The statement of retained earnings may also contain the correction of an accounting error that occurred in the financial statements of a prior period, called a prior period adjustment. Any restrictions on retained earnings must be disclosed in the notes to the financial statements. Accounting for Cash DividendsDeclared by board of directors.Creates liability at declaration.Requires sufficient Retained Earnings and Cash.Declaration dateBoard of directors declares a $10,000 cash dividend.Record a liability. Declaration Date:Retained earnings ........................................ 10,000 Dividends payable .............................. 10,000To record declaration of cash dividend.Not legally required.Date of Record Stockholders holding shares on this date will receivethe dividend. (No entry) Dividend DatesDate of PaymentRecord the dividend payment to stockholders.Ex-dividend date The first day the shares trade without the right to receive the declared dividend. (No entry) Date of Payment:Dividends payable ........................................ 10,000 Cash .............................. 10,000To record payment of cash dividend. Accounting for Stock DividendsDistribution of additional shares of stock to owners.No change in total stockholders’ equity.All stockholders retain same percentage ownership.No change inpar values.Stock dividend 25%Record at parvalue of stock.LargeStock splits change the par value per share and the number of shares outstanding, but the total par value is unchanged, and no journal entry is required. Stock SplitsAssume that a corporation had 3,000 shares of $2 par value common stock outstanding before a 2–for–1 stock split.IncreaseDecreaseNo ChangeEnd of Chapter 18