1、Corporations: Organization, Stock Transactions, Dividends, and Retained Earnings,Chapter 12,Financial Accounting, Sixth Edition,Identify the major characteristics of a corporation. Record the issuance of common stock. Explain the accounting for treasury stock. Differentiate preferred stock from comm
2、on stock. Prepare the entries for cash dividends and stock dividends. Identify the items that are reported in a retained earnings statement. Prepare and analyze a comprehensive stockholders equity section.,Study Objectives,Cash dividends Stock dividends Stock splits,Corporate Organization and Stock
3、Transactions,Dividends,Retained Earnings,Statement Presentation and Analysis,Corporate form of organization Common stock issues Treasury stock Preferred stock,Retained earnings restrictions Prior period adjustments Retained earnings statement,Presentation Analysis,Corporations: Organization, Stock T
4、ransactions, Dividends and Retained Earnings,An entity separate and distinct from its owners.,The Corporate Form of Organization,Classified by Purpose Not-for-Profit For Profit,Classified by Ownership Publicly held Privately held,McDonalds Ford Motor Company PepsiCo Google,Salvation Army American Ca
5、ncer Society Gates Foundation,Cargill Inc.,Separate Legal Existence Limited Liability of Stockholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Government Regulations Additional Taxes Corporate Management,Characteristics that distinguish corporations from proprietorshi
6、ps and partnerships.,Characteristics of a Corporation,SO 1 Identify the major characteristics of a corporation.,Advantages,Disadvantages,Characteristics of a Corporation,SO 1 Identify the major characteristics of a corporation.,Stockholders,Chairman and Board of Directors,President and Chief Executi
7、ve Officer,General Counsel and Secretary,Vice President Marketing,Vice President Finance/Chief Financial Officer,Vice President Operations,Vice President Human Resources,Treasurer,Controller,Illustration 12-1 Corporation organization chart,File application with the Secretary of State. State grants c
8、harter. Corporation develops by-laws.,Initial Steps:,Forming a Corporation,SO 1 Identify the major characteristics of a corporation.,Companies generally incorporate in a state whose laws are favorable to the corporate form of business (Delaware, New Jersey). Corporations expense organization costs a
9、s incurred.,1. Vote in election of board of directors and on actions that require stockholder approval.,Stockholders have the right to:,Ownership Rights of Stockholders,SO 1 Identify the major characteristics of a corporation.,2. Share the corporate earnings through receipt of dividends.,Illustratio
10、n 12-3,3. Keep the same percentage ownership when new shares of stock are issued (preemptive right*).,Stockholders have the right to:,Ownership Rights of Stockholders,SO 1 Identify the major characteristics of a corporation.,* A number of companies have eliminated the preemptive right.,Illustration
11、12-3,4. Share in assets upon liquidation in proportion to their holdings. This is called a residual claim.,Stockholders have the right to:,Ownership Rights of Stockholders,SO 1 Identify the major characteristics of a corporation.,Illustration 12-3,Ownership Rights of Stockholders,SO 1 Identify the m
12、ajor characteristics of a corporation.,Class A COMMON STOCK,Class A COMMON STOCK,PAR VALUE $1 PER SHARE,PAR VALUE $1 PER SHARE,Stock Certificate,Name of corporation,Stockholders name,Class,Shares,Signature of corporate official,Prenumbered,Illustration 12-4,Stock Issue Considerations,SO 1 Identify t
13、he major characteristics of a corporation.,Charter indicates the amount of stock that a corporation is authorized to sell. Number of authorized shares is often reported in the stockholders equity section.,Authorized Stock,Stock Issue Considerations,SO 1 Identify the major characteristics of a corpor
14、ation.,Corporation can issue common stock directly to investors or indirectly through an investment banking firm. Factors in setting price for a new issue of stock: the companys anticipated future earnings its expected dividend rate per share its current financial position the current state of the e
15、conomy the current state of the securities market,Issuance of Stock,Stock Issue Considerations,SO 1 Identify the major characteristics of a corporation.,Stock of publicly held companies is traded on organized exchanges. Interaction between buyers and sellers determines the prices per share. Prices s
16、et by the marketplace tend to follow the trend of a companys earnings and dividends. Factors beyond a companys control, may cause day-to-day fluctuations in market prices.,Market Value of Stock,Stock Issue Considerations,SO 1 Identify the major characteristics of a corporation.,Years ago, par value
17、determined the legal capital per share that a company must retain in the business for the protection of corporate creditors. Today many states do not require a par value. No-par value stock is quite common today. In many states the board of directors assigns a stated value to no-par shares.,Par and
18、No-Par Value Stock,Paid-in Capital,Retained Earnings Account,Paid-in Capital in Excess of Par Account,Two Primary Sources of Equity,Common Stock Account,Preferred Stock Account,Corporate Capital,Paid-in capital is the total amount of cash and other assets paid in by stockholders in exchange for capi
19、tal stock.,SO 1 Identify the major characteristics of a corporation.,Paid-in Capital,Retained Earnings Account,Paid-in Capital in Excess of Par Account,Two Primary Sources of Equity,Common Stock Account,Preferred Stock Account,Corporate Capital,Retained earnings is net income that a corporation reta
20、ins for future use.,SO 1 Identify the major characteristics of a corporation.,Corporate Capital,Comparison of the owners equity (stockholders equity) accounts reported on a balance sheet for a proprietorship and a corporation.,Illustration 12-6,SO 1 Identify the major characteristics of a corporatio
21、n.,Issuing Par Value Common Stock for Cash,Primary objectives: Identify specific sources of paid-in capital. Maintain distinction between paid-in capital and retained earnings.,Accounting for Common Stock Issues,SO 2 Record the issuance of common stock.,Issuing No-Par Common Stock for Cash,Avoids co
22、ntingent liability for stockholders.,Illustration: Viking Corporation issued 300 shares of $10 par value common stock for $4,100. Prepare Vikings journal entry.,Cash 4,100,Common stock (300 x $10) 3,000,Paid-in capital in excess of par 1,100,Accounting for Common Stock Issues,SO 2 Record the issuanc
23、e of common stock.,Illustration: Knopfle Corporation issued 600 shares of no-par common stock for $10,200. Prepare Knopfles journal entry if (a) the stock has no stated value, and (b) the stock has a stated value of $2 per share.,Cash 10,200,Common stock 10,200,Cash 10,200,Common stock (600 x $2) 1,
24、200,Paid-in capital in excess of stated value 9,000,a.,b.,Accounting for Common Stock Issues,SO 2 Record the issuance of common stock.,Issuing Common Stock for Services or Noncash Assets,Corporations also may issue stock for: Services (attorneys or consultants). Noncash assets (land, buildings, and
25、equipment).,Accounting for Common Stock Issues,Cost is either the fair market value of the consideration given up, or the fair market value of the consideration received, whichever is more clearly determinable.,SO 2 Record the issuance of common stock.,Illustration: On March 2nd, Leone Co. issued 5,
26、000 shares of $5 par value common stock to attorneys in payment of a bill for $30,000 for services provided in helping the company to incorporate.,Organizational expense 30,000,Common stock (5,000 x $5) 25,000,Paid-in capital in excess of par 5,000,Accounting for Common Stock Issues,SO 2 Record the
27、issuance of common stock.,Illustration: Kane Inc.s $10 par value common stock is actively traded at a market value of $15 per share. Kane issues 5,000 shares to purchase land advertised for sale at $85,000. Journalize the issuance of the stock in acquiring the land.,Land (5,000 x $15) 75,000,Common
28、stock (5,000 x $10) 50,000,Paid-in capital in excess of par 25,000,Accounting for Common Stock Issues,SO 2 Record the issuance of common stock.,Paid-in Capital,Retained Earnings Account,Paid-in Capital in Excess of Par Account,Less: Treasury Stock Account,Two Primary Sources of Equity,Common Stock A
29、ccount,Preferred Stock Account,Accounting for Treasury Stock,SO 3 Explain the accounting for treasury stock.,Treasury stock - corporations own stock that it has reacquired from shareholders, but not retired.,Corporations purchase their outstanding stock: To reissue shares to officers and employees u
30、nder bonus and stock compensation plans. To enhance the stocks market value. To have additional shares available for use in acquisition of other companies. To increase earnings per share. To rid company of disgruntled investors, perhaps to avoid a takeover.,Accounting for Treasury Stock,SO 3 Explain
31、 the accounting for treasury stock.,Purchase of Treasury Stock,Two acceptable methods: Cost method (more widely used). Par or Stated value method. Treasury stock, reduces stockholders equity.,Accounting for Treasury Stock,SO 3 Explain the accounting for treasury stock.,Treasury stock (1,000 x $28) 2
32、8,000,Cash 28,000,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: April 1st the company re-acquired 1,000 shares for $28 per share.,Accounting for Treasury Stock,SO 3 Explain the accounting fo
33、r treasury stock.,Accounting for Treasury Stock,Stockholders Equity with Treasury stock,The number of shares issued (15,000), outstanding (14,000) and in the treasury (1,000) are disclosed. .,SO 3 Explain the accounting for treasury stock.,Sale of Treasury Stock,Above Cost Below Cost Both increase t
34、otal assets and stockholders equity.,Accounting for Treasury Stock,SO 3 Explain the accounting for treasury stock.,Cash (500 x $30) 15,000,Treasury stock (500 x $28) 14,000,Illustration: On April 1st, UC Company reacquired 1,000 shares of its $1 par, common stock, for $28 per share. June 1st Sold 50
35、0 shares of its Treasury Stock for $30 per share.,Paid-in capital treasury stock 1,000,Accounting for Treasury Stock,Above Cost,SO 3 Explain the accounting for treasury stock.,Cash (300 x $9) 2,700,Treasury stock (300 x $28) 8,400,Illustration: Record the journal entry for the following transaction:
36、 Oct. 15th Sold 300 shares of its Treasury Stock for $9 per share.,Paid-in capital treasury stock 1,000,Retained earnings 4,700,Limited to balance on hand,Accounting for Treasury Stock,Below Cost,SO 3 Explain the accounting for treasury stock.,Cash (100 x $11) 1,100,Treasury stock (100 x $28) 2,800,
37、Illustration: Record the journal entry for the following transaction: Oct. 30th Sold 100 shares of its Treasury Stock for $11 per share.,Retained earnings 1,700,Accounting for Treasury Stock,Below Cost,SO 3 Explain the accounting for treasury stock.,Accounting for Treasury Stock,Stockholders Equity
38、with Treasury stock,The number of shares issued (15,000), outstanding (14,900) and in the treasury (100) are disclosed .,SO 3 Explain the accounting for treasury stock.,Features often associated with preferred stock. Preference as to dividends. Preference as to assets in liquidation. Nonvoting.,SO 4
39、 Differentiate preferred stock from common stock.,Preferred Stock,Accounting for preferred stock at issuance is similar to that for common stock.,Illustration: Acker Inc. issues 5,000 shares of $100 par value preferred stock for cash at $130 per share. Journalize the issuance of the preferred stock.
40、,Preferred Stock,Cash (5,000 x $130) 650,000,Preferred stock (5,000 x $100) 500,000,Paid-in capital in excess of par Preferred stock 150,000,Preferred stock may have a par value or no-par value.,SO 4 Differentiate preferred stock from common stock.,Dividend Preferences Right to receive dividends bef
41、ore common stockholders. Per share dividend amount is stated as a percentage of preferred stocks par value or as a specified amount. Cumulative dividend preferred stockholders must be paid both current-year dividends and any unpaid prior-year (arrears) dividends before common stockholders receive di
42、vidends.,Preferred Stock,SO 4 Differentiate preferred stock from common stock.,A distribution of cash or stock to stockholders on a pro rata (proportional) basis. Types of Dividends:,Dividends,SO 5 Prepare the entries for cash dividends and stock dividends.,Cash dividends. Property dividends.,Divide
43、nds expressed: (1) as a percentage of the par or stated value, or (2) as a dollar amount per share.,Script (promissory note). Stock dividends.,Dividends require information concerning three dates:,Dividends,SO 5 Prepare the entries for cash dividends and stock dividends.,Cash Dividends For a corpora
44、tion to pay a cash dividend, it must have: Retained earnings - Payment of cash dividends from retained earnings is legal in all states. Adequate cash. A declaration of dividends by the Board of Directors.,Dividends,SO 5 Prepare the entries for cash dividends and stock dividends.,Illustration: What w
45、ould 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 earnings 50,000,Dividends payable 50,000,March 25 (Date of Record) No entry,April 6 (Payment Date),Divid
46、ends,Dividends payable 50,000,Cash 50,000,SO 5 Prepare the entries for cash dividends and stock dividends.,Allocating Cash Dividends Between Preferred and Common Stock,Dividends,Holders of cumulative preferred stock must be paid any unpaid prior-year dividends before common stockholders receive divi
47、dends.,SO 5 Prepare the entries for cash dividends and stock dividends.,Exercise: Arnez Corporation was organized on January 1, 2007. During its first year, the corporation issued 2,000 shares of $50 par value preferred stock and 100,000 shares of $10 par value common stock. At December 31, the comp
48、any declared the following cash dividends: 2007, $6,000, 2008, $12,000, and 2009, $28,000. Instructions: (a) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 8% and not cumulative.,Dividends,SO 5 Prepare the entries for cash dividends and stock divide
49、nds.,Exercise: (a) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 8% and not cumulative.,Dividends,* 2,000 shares x $50 par x 8% = $8,000,*,SO 5 Prepare the entries for cash dividends and stock dividends.,Exercise: (b) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 9% and cumulative.,Dividends,* 2,000 shares x $50 par x 9% = $9,000,*,* 2007 Pfd. dividends $9,000 declared $6,000 = $3,000,*,SO 5 Prepare the entries for cash dividends and stock dividends.,
