Quản trị Kinh doanh - Chapter 13: Accounting for corporations

Accounting for CorporationsChapter 13PowerPoint Editor: Beth Kane, MBA, CPACopyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 13-C1: Characteristics of Corporations 2Privately HeldPublicly HeldOwnership can be Corporate Form of OrganizationExistence is separate from ownersAn entity created by lawHas rights and privilegesC 13Characteristics of CorporationsAdvantagesSeparate legal entityLimited liability of stockholdersTransferable ownership rights Continuous lifeLack of mutual agency for stockholdersEase of capital accumulationDisadvantagesGovernmental regulationCorporate taxationC 14Corporate Organization and ManagementC 1Corporate governance is the system by which companies are directed and controlled.Board of DirectorsStockholdersPresident, Vice President, and other OfficersEmployees of the Corporation5Ultimate controlSelected by a vote of the stockholdersOverall responsibility for managing the companyCorporate Organization and ManagementC 1Stockholders usually meet once a year6Rights of Stockholders Vote at stockholders’ meetings (or register proxy votes electronically) Sell stock Purchase additional shares of stock Receive dividends, if any Share equally in any assets remaining after creditors are paid in a liquidationC 17Each unit of ownership is called a share of stock.A stock certificate serves as proof that a stockholder has purchased shares.Stock Certificates and TransferWhen the stock is sold, the stockholder signs a transfer endorsement on the back of the stock certificate.C 18Basics of Capital StockTotal amount of stock that a corporation’s charter authorizes it to sell.Total amount of stock that has been issued or sold to stockholders.C 19Par value is an arbitrary amount assigned to each share of stock when it is authorized.Market price is the amount that each share of stock will sell for in the market.Basics of Capital StockClasses of Stock Par Value No-Par Value Stated ValueC 110 13-P1: Common Stock 11Par Value StockOn June 5, Dillon Snowboard’s, Inc. issued 30,000 shares of $10 par value stock for $12 per share. Let’s record this transaction. Issuing Par Value StockP 112Issuing Par Value StockP 113Issuing Stock for Noncash AssetsPar Value StockOn June 10, 4,000 shares of $20 par value stock for land valued at $105,000. Let’s record this transaction. P 114Prepare journal entries to record the following four separate issuances of stock.1)A corporation issued 80 shares of $5 par value common stock for $700 cash.2)A corporation issued 40 shares of no-par common stock to its promoters in exchange for their efforts,estimated to be worth $800. The stock has a $1 per share stated value.3)A corporation issued 40 shares of no-par common stock in exchange for land, estimated to be worth$800. The stock has no stated value.4)A corporation issued 20 shares of $30 par value preferred stock for $900 cash.DebitCredit1)Cash700Common Stock, $5 par value(80 shares x $5)400Paid-in Capital in excess of par value, Common stock3002)Organization expenses800Common Stock, $1 stated value(40 shares x $1)40Paid-in Capital in excess of stated value, Common stock7603)Land800Common Stock, No-par value8004)Cash900Preferred Stock, $30 par value(20 shares x $30)600Paid-in Capital in excess of par value, Preferred stock300General JournalNEED-TO-KNOWP 115 13-P2: Dividends 16DividendsStockholdersCash DividendsCorporationTo pay a cash dividend, the corporation must have:A sufficient balance in retained earnings; and The cash necessary to pay the dividend.Regular cash dividends provide a return to investors and almost always affect the stock’s market value.P 217Accounting for Cash DividendsThree Important DatesDate of DeclarationRecord liabilityfor dividend.Date of RecordNo entryrequired.Date of PaymentRecord payment ofcash to stockholders.P 218Date of DeclarationRecord liabilityfor dividend.Accounting for Cash DividendsOn January 9, a $1 per share cash dividend is declaredon Z-Tech, Inc.’s 5,000 common shares outstanding. Thedividend will be paid on February 1 to stockholders ofrecord on January 22.P 219No entry required on January 22, the date of record.Date of PaymentRecord payment of cash to stockholders.Accounting for Cash DividendsOn January 9, a $1 per share cash dividend is declaredon Z-Tech, Inc.’s 5,000 common shares outstanding. Thedividend will be paid on February 1 to stockholders ofrecord on January 22.P 220Deficits and Cash DividendsA deficit is created when a company incurs cumulative losses or pays dividends greaterthan total profits earned in other years.P 221Stock DividendsWhy a stock dividend? Can be used to keep the market price on the stock affordable. Can provide evidence of management’s confidence that the company is doing well.A distribution of a corporation’s own shares to its stockholders without receiving any payment in return.Small Stock DividendDistribution is £ 25% of the previously outstanding shares.Large Stock DividendDistribution is > 25% of the previously outstanding shares.P 222Recording a Small Stock DividendQuest has 10,000 shares of $1 par value stock outstanding. On December 31, Quest declared a 10% stock dividend, when the stock was selling for $15 per share. The stock will be distributed to stockholders on January 20. Let’s prepare the December 31 entry.1,000 × $10 parCapitalize retained earnings for the market value of the shares to be distributed. (10,000 × 10% = 1,000 × $15 = $15,000)P 223Before thestockdividend.After thestockdividend.P 224Recording a Small Stock DividendQuest has 10,000 shares of $1 par value stock outstanding. On December 31, Quest declared a 10% stock dividend, when the stock was selling for $15 per share. The stock will be distributed to stockholders on January 20. Let’s prepare the January 20 entry.P 225Recording a Large Stock DividendCapitalize retained earnings for the minimum amount required by state law, usually par or stated value of the shares.(10,000 × 30% = 3,000 shares × $10 par value = $30,000)Quest, Inc. has 10,000 shares of $1 par value stock outstanding. On December 31, Quest declared a 30% stock dividend. The stock will be distributed to stockholders on January 20, 2014. Let’s prepare the December 31 entry.P 226Common Stock$20 par value100,000 sharesOldSharesNewSharesCommon Stock$10 par value200,000 sharesStock SplitsA distribution of additional shares of stock to stockholders according to their percent ownership.P 227NEED-TO-KNOWA company began the current year with the following balances in its Stockholders’ Equity accounts.Common Stock- $10 par, 500 shares authorized, 200 shares issued and outstanding$2,000Paid-in capital in excess of par, Common Stock1,000Retained earnings5,000Total$8,000Jan. 10The board declared a $0.10 cash dividend per share to shareholders of record on Jan. 28.Feb. 15Paid the cash dividend declared on January 10.Mar. 31Declared a 20% stock dividend. The market value of the stock is $18 per share.May 1Distributed the stock dividend declared on March 31.Dec. 1Declared a 40% stock dividend. The market value of the stock is $25 per share.Dec. 31Distributed the stock dividend declared on December 1.All outstanding common stock was issued for $15 per share when the company was created. Preparejournal entries to account for the following transactions during the current year.P 228NEED-TO-KNOWCommon Stock- $10 par, 500 shares authorized, 200 shares issued and outstanding$2,000Paid-in capital in excess of par, Common Stock1,000Retained earnings5,000Total$8,000Jan. 10The board declared a $0.10 cash dividend per share to shareholders of record on Jan. 28.Feb. 15Paid the cash dividend declared on January 10.Mar. 31Declared a 20% stock dividend. The market value of the stock is $18 per share.May 1Distributed the stock dividend declared on March 31.Dec. 1Declared a 40% stock dividend. The market value of the stock is $25 per share.Dec. 31Distributed the stock dividend declared on December 1.DebitCreditJan. 10Retained earnings(200 shares x $0.10)20Common dividend payable20Jan. 28No journal entry on the date of recordFeb. 15Common dividend payable20Cash20Mar. 31Retained earnings(200 shares x 20% = 40 shares x $18 mkt.)720Common Stock dividend distributable(40 shares x $10 par)400Paid-in Capital in excess of par value, Common Stock320May 1Common Stock dividend distributable(40 shares x $10 par)400Common Stock, $10 par value(40 shares x $10 par)400General JournalP 229NEED-TO-KNOWCommon Stock- $10 par, 500 shares authorized, 200 shares issued and outstanding$2,000Paid-in capital in excess of par, Common Stock1,000Retained earnings5,000Total$8,000Jan. 10The board declared a $0.10 cash dividend per share to shareholders of record Jan. 28.Feb. 15Paid the cash dividend declared on January 10.Mar. 31Declared a 20% stock dividend. The market value of the stock is $18 per share.May 1Distributed the stock dividend declared on March 31.Dec. 1Declared a 40% stock dividend. The market value of the stock is $25 per share.Dec. 31Distributed the stock dividend declared on December 1.DebitCreditMay 1Common Stock dividend distributable(40 shares x $10 par)400Common Stock, $10 par value(40 shares x $10 par)400Dec. 1Retained earnings(240 shares x 40% = 96 shares x $10 par)960Common Stock dividend distributable(96 shares x $10 par)960Dec. 31Common Stock dividend distributable(96 shares x $10 par)960Common Stock, $10 par value(96 shares x $10 par)960General JournalP 230 13-C2: Issuance of Preferred Stock 31Preferred Stock A separate class of stock, typically having priority over common shares in . . .Dividend distributionsDistribution of assets in case of liquidationUsually has a stated dividend rateNormally has novoting rightsC232vs.NoncumulativeCumulativeDividends in arrears must be paid before dividends may be paid on common stock. (Normal case)Undeclared dividends from current and prior years do not have to be paid in future years.Preferred StockConsider the following Stockholders’ Equity section of the Balance Sheet. The Board of Directors declares $5,000 of dividends in 2014. In 2015, the Board declared and paid cash dividends of $42,000.C233Preferred StockC234vs.NonparticipatingParticipatingDividends may exceed a stated amount once common stockholders receive a dividend equal to the preferred stated rate.Dividends are limited to a maximum amount each year. The maximum is usually the stated dividend rate.(Normal case)Preferred StockReasons for Issuing Preferred StockTo raise capital without sacrificing controlTo boost the return earned by common stockholders through financial leverageTo appeal to investors who may believe the common stock is too risky or that the expected return on common stock is too lowC235NEED-TO-KNOWTotal20X1$15 20X25 20X3200 Total$220 Par value per preferred share$5Dividend %5%Dividend per preferred share$0.25Number of preferred shares80Annual preferred dividend$20TotalPreferredCommon20X1$15 $15 $0 20X25 5 0 20X3200 20 180 Total$220 $40 $180 Part 1. Determine the amount of dividends paid each year to each of the two classes of stockholders: preferred and common. Also compute the total dividends paid to each class for the three years. A company’s outstanding stock consists of 80 shares of noncumulative 5% preferred stock with a $5 par value and also 200 shares of common stock with a $1 par value. During its first three years of operation, the corporation declared and paid the following total cash dividends:Annual preferred dividendC236NEED-TO-KNOWTotalPreferredArrearsCommon20X1$15 $15 $5 $0 20X25 5 20 0 20X3200 40 0 160 Total$220 $60 $160 A company’s outstanding stock consists of 80 shares of noncumulative 5% preferred stock with a $5 par value and also 200 shares of common stock with a $1 par value. During its first three years of operation, the corporation declared and paid the following total cash dividends:Part 2. Determine the amount of dividends paid each year to each of the two classes of stockholders assuming that the preferred stock is cumulative. Also determine the total dividends paid to each class for the three years combined.Par value per preferred share$5Dividend %5%Dividend per preferred share$0.25Number of preferred shares80Annual preferred dividend$20Annual preferred dividendC237 13-P3: Treasury Stock 38Treasury StockTreasury stock represents shares of a company’s own stock that has been acquired. A corporation might acquire its own stock to: Use its shares to buy other companies. Avoid a hostile takeover. Reissue to employees as compensation. Support the market price.P 339Purchasing Treasury StockTreasury stock is shown as a reduction in totalstockholders’ equity on the balance sheet.On May 1, Cyber, Inc. purchased 1,000 of its ownshares of stock in the open market for $11.50 per share. P 340Selling Treasury Stock at CostOn May 21, Cyber sold 100 shares ofits treasury stock for $11.50 per share.P 341Selling Treasury StockAbove CostOn June 3, Cyber, Inc. sold an additional 400shares of its treasury stock for $12 per share.P 342Selling Treasury Stock Below CostOn July 10, Cyber sold an additional 500 shares of its treasury stock for $10 per share.P 343NEED-TO-KNOWA company began the current year with the following balances in its stockholders’ equity accounts.Common Stock - $10 par, 500 shares authorized, 200 shares issued and outstanding$2,000Paid-in capital in excess of par, Common Stock1,000Retained earnings5,000Total$8,000Jul. 1Purchased 30 shares of treasury stock at $20 per share.Sep. 1Sold 20 treasury shares at $26 cash per share.Dec. 1Sold the remaining 10 shares of treasury stock at $7 cash per share.All outstanding common stock was issued for $15 per share when the company was created. Preparejournal entries to account for the following transactions during the current year.P 344NEED-TO-KNOWCommon Stock - $10 par, 500 shares authorized, 200 shares issued and outstanding$2,000Paid-in capital in excess of par, Common Stock1,000Retained earnings5,000Total$8,000Jul. 1Purchased 30 shares of treasury stock at $20 per share.Sep. 1Sold 20 treasury shares at $26 cash per share.Dec. 1Sold the remaining 10 shares of treasury stock at $7 cash per share.DebitCreditJul. 1Treasury Stock(30 shares x $20 cost)600Cash600Sep. 1Cash(20 shares x $26)520Treasury Stock(20 shares x $20 cost)400Paid-in Capital, Treasury Stock120Dec. 1Cash(10 shares x $7)70Paid-in Capital, Treasury Stock(Available balance)120Retained Earnings10Treasury Stock(10 shares x $20 cost)200General JournalP 345 13-C3: Statement of Retained Earnings 46Statement of Retained EarningsRetained earnings is the total cumulative amount of reported net income less any net losses and dividends declared since the company started operating.Legal RestrictionMost states restrictthe amount oftreasury stockpurchases to theamount of retainedearnings.Contractual RestrictionLoan agreementscan includerestrictions on payingdividends below acertain amount ofretained earnings.Restricted Retained EarningsC 347Prior Period AdjustmentsPrior period adjustments are corrections of material errors in past years’ financial statements that result in a change in the beginning balance of retained earnings. C 348Statement of Stockholders’ EquityThis is a more inclusive statement than the statement of retained earnings.C 349Optionpurchaseprice $30 per share.Stock OptionsMarketprice ofstock $75 per share. The right to purchase common stock at a fixed price over a specified period of time. As the stock’s price rises above the fixed option price, the value of the option increases.Options are given to key employees to motivate them to:focus on company performance,take a long-run perspective, andremain with the company.C 350Global ViewU.S. GAAP and IFRS have similar procedures for issuing common stock at par, at a premium, at a discount, and for noncash assets.Accounting for and reporting cash dividends, stock dividends, and stock splits, are consistent under both U.S. GAAP and IFRS.Accounting for treasury stock is consistent under both U.S. GAAP and IFRS. Companies do not report gains or losses on transactions involving their own stock. Preferred stock that is redeemable at the option of the preferred stockholder is reported between liabilities and equity under U.S. GAAP, but it is reported as a liability under IFRS. Also, the issue price of convertible preferred stock (and bonds) is recorded entirely under preferred stock (or bonds) and none is assigned to the conversion feature under U.S. GAAP. However, IFRS requires that a portion of the issue price be allocated to the conversion feature when it exists.51 13-A1: Earnings Per Share 52Earnings Per ShareBasicearningsper share=Net income - Preferred dividendsWeighted-average common shares outstandingEarnings per share is one of the most widely cited accounting statistics.A 153 13-A2: Price-Earnings Ratio 54Price-Earnings RatioPrice–earningsratio= Market value (price) per shareEarnings per shareThis ratio reveals information about the stock market’s expectations for a company’s future growth in earnings, dividends, and opportunities.A 255 13-A3: Dividend Yield 56Dividend YieldDividendyield= Annual cash dividends per share Market value per shareTells us the annual amount of cash dividends distributed to common stockholders relative tothe stock’s market price.A 357 13-A4: Book Value Per Share 58Book Value per Common ShareBook value percommon share=Stockholders’ equity applicable to common sharesNumber of commonshares outstandingReflects the amount of stockholders’ equityapplicable to common shares on a per share basis.A 459Book Value per Preferred ShareBook value perpreferred share= Stockholders’ equity applicable to preferred sharesNumber of preferred shares outstandingReflects the amount of stockholders’ equity applicable to preferred shares on a per share basis.A 460End of Chapter 1361