ACCT 209 1nd Edition Lecture 13 Outline of Last Lecture I Comparison of organizations II Bonds compared to capital stock III Stock Terms IV Stock Holder rights V Issuing stock a Example Outline of Current Lecture VI VII VIII IX X XI XII a Example continued Cash Dividends a Example Sock Dividends a Example Stock Splits Treasury Stocks Summary of effects of Stock Transactions a Example Earnings per share Retained Earnings Current Lecture At 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 50 000 These 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 63 000 175 000 DIVIDENDS Distribution of Profits after tax to owners A Cash dividends Company needs to have a positive retained earnings and cash in order to give out dividends Date 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 date Date of payment Check is in the mail Dividend payable goes down and cash goes down Example 2 Cash dividends Beeville Corporation had the following stockholders equity during 2014 14 preferred stock 100 par value 200 000 Common stock 10 par value 400 000 The 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 Common 2012 0 0 28 000 0 2013 0 0 56 000 0 2014 140 000 84 000 0 56 000 Amount paid to preferred 84 000 and common 56 000 B 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 stockholders Effect on balance sheet RE Decreases by value of new stock issued Contributed capital Increases by value sock and possible APIC Total stockholders equity No change Note Mezzanine is another name for preferred stock STOCK SPLITS Purpose reduce market price Effect on stock accounts Par value goes down and number of shares goes up TREASURY STOCK Treasury stock is a corporation s own stock that has been issued and then re purchased by the corporation Purpose Treasury stock may be acquired to provide employee bonuses or benefit plans maintain market price of stock maintain ownership control prevent takeover E P S Earnings per share NI shares outstanding Used to compare companies Summary Effect of stock transactions on balance sheet SE Assets Cash div Liab Com Stk APIC Down Stock div Up RE Treas Stk Ttl SE Down down Down No change Stock split No change Purchase treas stk Down up down STOCKHOLDERS EQUITY ON THE BALANCE SHEET Example 3 The following incomplete information appeared in the stockholders equity section of the balance sheet of the Jacksboro Corporation Stockholders equity Preferred stock 8 100 par value 10 000 shares authorized shares issued and outstanding 400 000 Common stock Par value 600 000 shares authorized 300 000 shares issued shares outstanding 900 000 Additional paid in capital Preferred stock 25 000 Common stock 380 000 Total paid in contributed capital Retained earnings Less Treasury stock 20 000 common shares at cost Total stockholders equity X 50 000 2 337 000 Required Determine the following a the number of shares of preferred stock issued and outstanding 400 000 100 4000 b the par value per share of common stock 90 000 300 000 13 c the number of shares of common stock outstanding 3000 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 capital 400 000 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 stock Equal to Total paid in capital which is same as F h the balance in retained earnings Solve for X above X 682 000 i the cost per share of treasury stock 50 000 20 000 2 50 Earnings per share Helps compare companies Net Income pfd dividend wt avg shares outstanding Basic earnings per share of common stock Diluted earnings per share What if Change in number of shares if show lower amount that might happen RETAINED EARNINGS Restrictions Board of directors vote to ear mark Can create separate account Retained earnings goes down and restrictive retained earnings goes up Prior Period Adjustments error in NI is just now discovered Adjust Beginning Retained earnings Beg RE Prior period adjustment Restated B RE NI Div Note The cash flow things in pre lecture prep should just be memorized for the test