Class 22&23 Chapter 11 shareholders’ equityPlanBusiness BackgroundOwnership of a CorporationSlide 5Authorized, Issued, and Outstanding Capital StockSlide 7Slide 8Types of Capital StockSpecial Features of Preferred StockPar Value and No-par Value StockLost ?Accounting for Capital StockSale and Issuance of Capital StockSlide 15Capital Stock Sold for Noncash Assets and/or ServicesSlide 17Secondary marketSlide 19Treasury StockSlide 21Slide 22Slide 23WholefoodsAccounting for Cash DividendsDividend DatesSlide 28Slide 29Example: Ex-dividend dateSlide 31Stock dividendsStock Dividends vs. Stock SplitsSlide 34Example: Stock dividendsSlide 36Stock SplitsRestrictions on Retained EarningsPP1PP1, cont.Slide 41PP2PP2, cont.Slide 44Dividends on Preferred StockExample: Dividends on Preferred StockSlide 47PP3PP4PP4, cont.Slide 51PP5PP5, cont.PP6Slide 55Slide 56Slide 57Slide 581Class 22&23 Chapter 11 shareholders’ equityAccounting 2610Xiumin Martin4/4/20132PlanTypes of stocks in corporationsCommonPreferredAccounting for Stock issuancesStock absorptionsTreasury stocksAccounting for dividendsCash dividendsStock dividendsStock splits3Business BackgroundAdvantage of a corporationBecoming an owner is easyOwnership transfer is easyLimited liabilityA corporation is a separate legal entity. As such: It can own assetsIncur liabilitiesEnter into contractsSue and be sued4Ownership of a CorporationStockholders’ Rights•Voting (in person or by proxy).•Proportionate distributions of profits.•Proportionate distributions of assets in a liquidation.5Ownership of a CorporationV i c e P r e s i d e n t( P r o d u c t i o n )V i c e P r e s i d e n t( M a r k e t i n g )V i c e P r e s i d e n t( F i n a n c e )V i c e P r e s i d e n t( C o n t r o l l e r )P r e s i d e n tB o a r d o f D i r e c t o r sI n t e r n a l ( m a n a g e r s ) a n dE x t e r n a l ( n o n - m a n a g e r s )S t o c k h o l d e r s( O w n e r s o f v o t i n g s h a r e s )Elected byshareholdersAppointedby directors6Authorized, Issued, and Outstanding Capital StockThe maximum number of shares of capital stock that can be sold to the public. Determined in the company’s charter of incorporations. AuthorizedShares7Authorized, Issued, and Outstanding Capital StockAuthorizedSharesIssued shares are authorized shares of stock that have been sold.Unissued shares are authorized shares of stock that never have been sold.8Authorized, Issued, and Outstanding Capital StockAuthorizedSharesUnissuedSharesTreasurySharesOutstandingSharesIssuedSharesTreasury shares are issued shares that have been reacquired by the corporation.Outstanding shares are issued shares that are owned by stockholders.9Types of Capital Stock1. Common StockBasic voting stockRanks after preferred stockDividend set by board of directors2. Preferred StockUsually no voting rightsPreference over common stockUsually has a fixed dividend rateMix of bond and stock10Special Features of Preferred StockConvertible preferred stock may be exchanged for common stock.Convertible preferred stock may be exchanged for common stock.Callable preferred stock may be repurchased by the corporation at a predetermined price.Callable preferred stock may be repurchased by the corporation at a predetermined price.11Par Value and No-par Value StockPar value A nominal value per share of stock.Specified in charterRepresents the legal capitalNot important for analytical purposes.Important for legal purposesLegal capital is the amount of capital, required by the state, that must remain invested in the business.Par Value Market Value12Lost ?Types of stocks in corporationsCommonPreferredAccounting for Stock issuancesStock absorptionsTreasury stocksAccounting for dividendsCash dividendsStock dividendsStock splits13Accounting for Capital StockTwo primary sources of stockholders’ equityRetained earnings Contributed capitalParvalueAdditional paid-in capital14Sale and Issuance of Capital StockInitial public offering (IPO)Seasoned new issueThe first time a corporation sells stock to the public.Subsequent sales of new stock to the public.15GENERAL JOURNALPage 34Date Description Debit CreditJuly 6Sale and Issuance of Capital StockOn July 6, Wal-Mart issued 100,000 shares of $0.10 par value common stock for $22 per share.Prepare the journal entry to record this transaction.16Capital Stock Sold for Noncash Assets and/or ServicesRecord assets or services received at the market value of the stock at the date of the transaction.Record assets or services received at the market value of the stock at the date of the transaction.17GENERAL JOURNALPage 12Date Description Debit CreditMar. 14Capital Stock Sold for Noncash Assets and/or ServicesOn March 14, Wal-Mart issued 10,000 shares of its $0.10 par value common stock to the Rose Law firms in exchange of the legal service. The stock was selling for $15 per share.Prepare the journal entry to record this transaction.18Secondary marketBill sold 2,000 shares of Microsoft stock to Jane. What would be the effect on Microsoft shareholders’ equity? Transactions in a company’s stock between two investors do not have a direct effect on the company.No journal entries are made.19PlanTypes of stocks in corporationsCommonPreferredAccounting for Stock issuancesStock absorptionsTreasury stocksAccounting for dividendsCash dividendsStock dividendsStock splits20Treasury StockAuthorizedSharesUnissuedSharesTreasurySharesOutstandingSharesTreasury shares are issued shares that have been reacquired by the corporation.IssuedShares21Treasury StockWhen a corporations buys back its own stock.Opposite to a stock issue.No voting rights or dividend rightsRecord treasury stock at cost.Contra Equity Account: reduces shares outstanding and shareholders equity22On May 1, 1998 Walmart reacquired 3,000 shares of its common stock at $55 per share.Prepare the journal entry for May 1.Treasury StockGENERAL JOURNALPage 27DateDescriptionPost. Ref.Debit Credit23Treasury StockGENERAL JOURNALPage 68DateDescriptionPost. Ref.Debit CreditOn December 3, 1999 Walmart reissued 1,000 shares of the stock at $75 per share. Prepare the journal entry for December 3.24WholefoodsShareholders’ equity section of financial statements.25 PlanTypes of stocks in corporationsCommonPreferredAccounting
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