1、,Accounting and Reporting of Stockholders Equity,Chapter 15,Intermediate Accounting12th EditionKieso, Weygandt, and Warfield,Prepared by Coby Harmon, University of California, Santa Barbara,Issuance of stockReacquisition of shares,The Corporate Form,Corporate Capital,Preferred Stock,Dividend Policy,
2、Presentation and Analysis,State corporate lawCapital stock or share systemVariety of ownership interests,FeaturesAccounting for and reporting preferred stock,Financial condition and dividend distributionsTypes of dividendsStock splitDisclosure of restrictions,PresentationAnalysis,Stockholders Equity
3、,Three primary forms of business organization,The Corporate Form of Organization,Proprietorship,Partnership,Corporation,LO 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
4、 system.Development of a variety of ownership interests.,State Corporate Law,The Corporate Form of Organization,LO 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 - in
5、corporated 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 System,The Corporate Form of Organization,LO 1 Discuss the characteristics of the corporate form of organization
6、.,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 o
7、f stock of the same classcalled the preemptive right.,Variety of Ownership Interests,The Corporate Form of Organization,LO 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 succe
8、ss.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 Capital,Retained EarningsAccount,Additional Paid-in CapitalAccount,Less:Treas
9、ury StockAccount,Two Primary Sources of Equity,Corporate Capital,LO 2 Identify the key components of stockholders equity.,Common StockAccount,Preferred StockAccount,Assets Liabilities = Equity,Issuance of Stock,Accounting problems: Par value stock.No-par stock.Stock issued with other securities.Stoc
10、k issued in noncash transactions.Costs of issuing stock.,LO 3 Explain the accounting procedures for issuing shares of stock.,Corporate Capital,Shares authorized - Shares sold - Shares issued,Par Value Stock,Low par values help companies avoid a contingent liability. Corporations maintain accounts fo
11、r:Preferred Stock or Common Stock.Additional Paid-in Capital,LO 3 Explain the accounting procedures for issuing shares of stock.,Corporate Capital,BE15-1: Lost Vikings Corporation issued 300 shares of $10 par value common stock for $4,100. Prepare Lost Vikings journal entry.,Cash4,100,Common stock (
12、300 x $10) 3,000,Journal entry:,Additional paid-in capital1,100,LO 3 Explain the accounting procedures for issuing shares of stock.,Corporate Capital,No-Par Stock,Reasons for issuance:Avoids contingent liability.Avoids confusion over recording par value versus fair market value.,LO 3 Explain the acc
13、ounting procedures for issuing shares of stock.,Corporate Capital,Some states require that no-par stock have a stated value.,BE15-2: Shinobi Corporation issued 600 shares of no-par common stock for $10,200. Prepare Shinobis journal entry if (a) the stock has no stated value, and (b) the stock has a
14、stated value of $2 per share.,Cash10,200,Common stock 10,200,Journal entry:,LO 3 Explain the accounting procedures for issuing shares of stock.,Corporate Capital,Cash10,200,Common stock (600 x $2) 1,200,Additional paid-in capital9,000,a.,b.,Stock Issued with Other Securities,Two methods of allocatin
15、g proceeds:the proportional method andthe incremental method.,LO 3 Explain the accounting procedures for issuing shares of stock.,Corporate Capital,BE15-4: Primal Rage Corporation issued 300 shares of $10 par value common stock and 100 shares of $50 par value preferred stock for a lump sum of $14,20
16、0. 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 Capital,Proportional Method,BE15-4: Primal Rage Corporation issued 300 shares of $10 par value common st
17、ock and 100 shares of $50 par value preferred stock for a lump sum of $14,200. 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 Capital,Cash14,200,Preferred
18、 stock (100 x $50) 5,000,Journal entry (Proportional):,Additional paid-in capital-preferred3,520,Common stock (300 x $10) 3,000,Additional paid-in capital-common2,680,BE15-4: (Variation) Primal Rage Corporation issued 300 shares of $10 par value common stock and 100 shares of $50 par value preferred
19、 stock for a lump sum of $14,200. 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 Capital,Incremental Method,LO 3 Explain the accounting procedures for issuing shares
20、of stock.,Corporate Capital,Cash14,200,Preferred stock (100 x $50) 5,000,Journal entry (Incremental):,Additional paid-in capital-preferred3,200,Common stock (300 x $10) 3,000,Additional paid-in capital-common3,000,BE15-4: (Variation) Primal Rage Corporation issued 300 shares of $10 par value common
21、stock and 100 shares of $50 par value preferred stock for a lump sum of $14,200. The common stock has a market value of $20 per share, and the value of the preferred stock is unknown.,Stock Issued in Noncash Transactions,The general rule: Companies should record stock issued for services or property
22、 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 Capital,LO 3 Explain the accounting procedures for issuing shares
23、of stock.,Corporate Capital,Land80,000,Common stock (24,000 x $1) 24,000,April 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 capital56,000,E15-2: Kathleen Battle Corporation was organized o
24、n January 1, 2007. It is authorized to issue 500,000 shares of no par common stock with a stated value of $1 per share. Prepare the journal entry to record the following.,LO 3 Explain the accounting procedures for issuing shares of stock.,Corporate Capital,Organization expense50,000,Common stock (10
25、,000 x $1) 10,000,Aug. 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 capital40,000,E15-2: Kathleen Battle Corporation was organized on January 1, 2007. It is authorized to issue 500,00
26、0 shares of no par common stock with a stated value of $1 per share. Prepare the journal entry to record the following.,Costs of Issuing Stock,Direct costs incurred to sell stock, such as underwriting costs, accounting and legal fees, printing costs, andtaxes, should be reported as a reduction of th
27、e amounts paid in (additional paid-in capital).,LO 3 Explain the accounting procedures for issuing shares of stock.,Corporate Capital,Reacquisition of Shares,LO 4 Describe the accounting for treasury stock.,Corporations purchase their outstanding stock:To provide tax-efficient distributions of exces
28、s 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 Capital,Purchase of Tre
29、asury Stock,Two acceptable methods: Cost method (more widely used). Par or Stated value method. Treasury stock, reduces stockholders equity.,Corporate Capital,LO 4 Describe the accounting for treasury stock.,Corporate Capital,Treasury stock (1,000 x $28) 28,000,Cash 28,000,Illustration: UC Company o
30、riginally issued 15,000 shares of $1 par, common stock for $25 per share. Record the journal entry for the following transaction:April 1st the company re-acquired 1,000 shares for $28 per share.,LO 4 Describe the accounting for treasury stock.,Sale of Treasury Stock,Above Cost Below CostBoth increas
31、e total assets and stockholders equity.,Corporate Capital,LO 4 Describe the accounting for treasury stock.,Corporate Capital,Cash (500 x $30) 15,000,Treasury stock (500 x $28) 14,000,Illustration: UC Company originally issued 15,000 shares of $1 par, common stock for $25 per share. Record the journa
32、l entry for the following transaction:June 1st Sold 500 shares of its Treasury Stock for $30 per share.,Paid-in capital treasury stock 1,000,LO 4 Describe the accounting for treasury stock.,Corporate Capital,Cash (300 x $9) 2,700,Treasury stock (300 x $28) 8,400,Illustration: UC Company originally i
33、ssued 15,000 shares of $1 par, common stock for $25 per share. Record the journal entry for the following transaction:Oct. 15th Sold 300 shares of its Treasury Stock for $9 per share.,Paid-in capital treasury stock 1,000,Retained earnings4,700,Limited to balance on hand,LO 4 Describe the accounting
34、for treasury stock.,Corporate Capital,Cash (100 x $11) 1,100,Treasury stock (100 x $28) 2,800,Illustration: UC Company originally issued 15,000 shares of $1 par, common stock for $25 per share. Record the journal entry for the following transaction:Oct. 30th Sold 100 shares of its Treasury Stock for
35、 $11 per share.,Retained earnings 1,700,LO 4 Describe the accounting for treasury stock.,Corporate Capital,Common stock (100 x $1) 100,Paid-in capital common (100 x $24) 2,400,Illustration: UC Company originally issued 15,000 shares of $1 par, common stock for $25 per share. Record the journal entry
36、 for the following transaction:Nov. 10th Retired remaining 100 shares of its Treasury Stock.,Treasury stock (100 x $28) 2,800,Retained earnings 300,LO 4 Describe the accounting for treasury stock.,Corporate Capital,Illustration 15-4 Stockholders Equity with No Treasury Stock,LO 4 Describe the accoun
37、ting for treasury stock.,Corporate Capital,Illustration 15-5 Stockholders Equity with Treasury Stock,LO 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.Callabl
38、e at the option of the corporation.Nonvoting.,LO 5 Explain the accounting for and reporting of preferred stock.,Preferred Stock,CumulativeParticipatingConvertibleCallableRedeemable,LO 5 Explain the accounting for and reporting of preferred stock.,Preferred Stock,Specific Features of Preferred Stock,
39、A 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.,LO 6 Describe the policies used in distributing dividends.,Dividend Policy,Dividend distributions
40、 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 bu
41、ild up a cushion against possible losses.,Cash dividends.Property dividends.,LO 7 Identify the various forms of dividend distributions.,Types of Dividends,Dividends require information concerning three dates:Date of declarationDate of recordDate of payment,Liquidating dividends.Stock dividends.,Cash
42、 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 Dividends,Illustration What would be the journal entrie
43、s 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 earnings,50,000,Dividends payable,50,000,March 25 (Date of Record) No entry,April 6 (Payment Date),Dividends payable,50,000,Cash,5
44、0,000,Debit,Credit,LO 7 Identify the various forms of dividend distributions.,Cash Dividend,Property 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.,Ty
45、pes of Dividends,Illustration 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 Declaration,Investment in bonds,35,000,Gain on investment,35,000,and,Date of Issuance,Property divide
46、nd payable,135,000,Investment in bonds,135,000,Debit,Credit,Retained earnings,135,000,Property dividend payable,135,000,LO 7 Identify the various forms of dividend distributions.,Property Dividend,Liquidating DividendsAny dividend not based on earnings reduces corporate paid-in capital.,LO 7 Identif
47、y the various forms of dividend distributions.,Types of Dividends,June 1 (Payment Date),April 20 (Declaration Date),Retained earnings,575,000,Additional paid-in capital,125,000,Debit,Credit,Dividends payable,700,000,Dividends payable,700,000,Cash,700,000,BE15-12 Radical Rex Mining Company declared,
48、on April 20, a dividend of $700,000 payable on June 1. Of this amount, $125,000 is a return of capital. Prepare the April 20 and June 1 entries for Radical Rex.,LO 7 Identify the various forms of dividend distributions.,Liquidating Dividend,Stock DividendsIssuance of own stock to stockholders on a p
49、ro rata basis, without receiving any consideration.When stock dividend is less than 2025 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 Dividends,10% stock dividend is declared,Retained earnings,
