ACCT 209 1nd Edition Lecture 13 Outline of Last Lecture I. Comparison of organizationsII. Bonds compared to capital stockIII. Stock TermsIV. Stock Holder rightsV. Issuing stocka. ExampleOutline of Current Lecture a. Example continuedVI. Cash Dividendsa. ExampleVII. Sock Dividendsa. ExampleVIII. Stock SplitsIX. Treasury StocksX. Summary of effects of Stock Transactionsa. ExampleXI. Earnings per shareXII. Retained EarningsCurrent LectureAt the end of Year 2:- How many shares of common stock are issued and outstanding?25,000 issued 0 treasury, so all are outstanding- What is the balance in the company’s common stock account?25,000- How many shares of preferred stock are issued and outstanding?50,000 / 100 = 500- What is the balance in the company’s preferred stock account?50,000These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- How much is the company’s contributed capital? Earned capital?50,000 + 5,000 + 25,000 + 32,000 = 112,000- What is total stockholders’ equity?112,000 + 63,000 = 175,000DIVIDENDS – Distribution of Profits after tax to ownersA. Cash dividends – Company needs to have a positive retained earnings and cash in order to give out dividendsDate of declaration – Board of directors vote to approve; If yes a liability now exists (Retained earnings goes down and dividend payable goes up)Date of record – The cut off dateDate of payment – Check is in the mail; Dividend payable goes down and cash goes downExample #2 Cash dividendsBeeville Corporation had the following stockholders’ equity during 2014:14% preferred stock, $100 par value $200,000Common stock, $10 par value 400,000The Board of Directors declares dividends of $140,000. The preferred stock is cumulative and dividends are in arrears (Unpaid) for the years 2012 and 2013. Calculate the amount of dividends payable to the preferred and common shareholders.Year Total Preferred Arrears Common2012 0 0 28,000 02013 0 0 56,000 02014 140,000 84,000 0 56,000Amount paid to preferred = 84,000 and common = 56,000B. Stock dividends – corporation issues additional shares of stock to stockholders; allows corporation to retain cash, may decrease market price of stock if dividend is large; stock dividends are not taxable income to stockholdersEffect on balance sheet:RE Decreases by value of new stock issuedContributed capital Increases by “value” sock and possible APICTotal stockholders’ equity No changeNote: Mezzanine is another name for preferred stockSTOCK SPLITSPurpose- reduce market priceEffect on stock accounts- Par value goes down and number of shares goes upTREASURY STOCKTreasury stock is a corporation’s own stock that has been issued and then re-purchased by the corporation. Purpose: Treasury stock may be acquired toprovide employee bonuses or benefit plansmaintain market price of stockmaintain ownership control / prevent takeoverE.P.S. = Earnings per share = NI / # shares outstandingUsed to compare companiesSummary: Effect of stock transactions on balance sheet SEAssets Liab Com.Stk.APIC RE (Treas.Stk)Ttl SECash div Down Down downStock div Up Down No changeStock splitNo changePurchase treas stkDown (up) downSTOCKHOLDERS’ EQUITY ON THE BALANCE SHEETExample #3 The following incomplete information appeared in the stockholders’ equity section of the balance sheet of the Jacksboro Corporation.Stockholders’ equityPreferred stock, 8%, $100 par value, $10,000 shares authorized,? shares issued and outstanding $ 400,000Common stock, $? Par value, 600,000 shares authorized, 300,000 shares issued, ? shares outstanding 900,000Additional paid in capitalPreferred stock 25,000Common stock 380,000Total paid in (contributed) capital $ ??Retained earnings ?? (X)Less: Treasury stock, 20,000 common shares at cost (50,000)Total stockholders’ equity $2,337,000Required: Determine the following(a) the number of shares of preferred stock issued and outstanding400,000/100 = 4000(b) the par value per share of common stock90,000/300,000 = 13(c) the number of shares of common stock outstanding3000,000 – 20,000 = 230,000(d) the average issue price per share of preferred stock(400,000 + 25,000)/ 40,000 = 106.25(e) the average issue price per share of common stock(900,000 – 38,000)/ 300,000 = 4.27(f) total paid in (contributed) capital400,000 + 90,000 + 25,000 + 380,000 = 1,705,000(g) the total amount of cash or other assets the company has received from the issue of stockEqual to Total paid in capital which is same as (F)(h) the balance in retained earningsSolve for X above; X = 682,000(i) the cost per share of treasury stock50,000 / 20,000 = 2.50Earnings per share – Helps compare companies= Net Income – pfd. dividend / wt. avg. # shares outstandingBasic earnings per share of common stockDiluted earnings per share – “What if”Change in number of shares if show lower amount that might happenRETAINED EARNINGSRestrictions – Board of directors vote to “ear mark”; Can create separate account; Retained earnings goes down and restrictive retained earnings goes upPrior Period Adjustments – error in NI is just now discovered; Adjust Beginning Retained earningsBeg. RE+/- Prior period adjustmentRestated B. RE+ NI-DivNote: The cash flow things in pre-lecture prep should just be memorized for the