Chapter 11PowerPoint PresentationCorporate OwnershipSlide 4Equity vs. Debt FinancingSlide 6Common Stock TransactionsAuthorized, Issued, and Outstanding SharesSlide 9Reporting Stock on Balance SheetStock AuthorizationStock IssuanceStock Exchanged b/t InvestorsSlide 14Stock RepurchaseSlide 16Repurchase of StockReissuance of Treasury StockSlide 19Slide 20Common Stock Cash DividendsRestrictions on Retained EarningsSlide 23Dividend DatesSlide 25Stock DividendsSlide 27Slide 28Stock SplitsSlide 30Preferred Stock IssuancePreferred Stock DividendsSlide 33Slide 34Slide 35Slide 36Slide 37Earnings Per Share (EPS)Return on Equity (ROE)Price/Earnings (P/E) RatioComparison of EPS, ROE, and P/E RatiosChapter 11 Solved ExercisesSlide 43Slide 44Slide 45Slide 46Slide 47Slide 48Slide 49Slide 50Slide 51Slide 52Slide 53Chapter 11Stockholders’ EquityPowerPoint Authors:Susan Coomer Galbreath, Ph.D., CPACharles W. Caldwell, D.B.A., CMAJon A. Booker, Ph.D., CPA, CIAFred Phillips, Ph.D., CAEdited by: Muriel Anderson, MBA, CPAExplain the role of stock in financing a corporation11-2Corporate OwnershipThe major advantage of the corporate form of business is the ease of raising capital as both large and small investors can participate in corporate ownership.Simple to become an ownerEasy to transfer ownershipProvides limited liabilityBecause a corporation is a separate legal entity, it can Own assets. Incur liabilities. Sue and be sued. Enter into contracts.11-3 Voting rights (common stock only) Dividends Residual claimsStockholderBenefitsCorporate Ownership Preemptive rights11-4Equity vs. Debt FinancingAdvantages of equity •Equity does not have to be repaid. •Dividends are optional.Advantages of debt•Interest on debt is tax deductible. •Debt does not change stockholder control.11-5Explain and analyze common stock transactions11-6Two primary sources of Stockholders’ EquityCommon Stock TransactionsContributed CapitalCommonStock,*at par valueAdditional Paid-in CapitalRetained Earnings 11-7*Some companies may also issue Preferred StockIssued shares are authorized shares of stock that have been sold.Unissued shares are authorized shares of stock that never have been sold.Authorized shares are the maximumnumber of shares of stock thatcan be sold to the public.Authorized, Issued, and Outstanding Shares11-8UnissuedSharesTreasurySharesOutstandingSharesTreasury shares are issued shares that have been reacquired by the corporation.Outstanding shares are issued shares that are owned by stockholders.Authorized, Issued, and Outstanding Shares11-9Reporting Stock on Balance SheetStock AuthorizationPar value is an arbitrary amount assigned to each share of stock when it is authorized.Par 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.11-11Some states do notrequire a par value to be stated in the charter.No-par StockStock Issuance Initial public offering (IPO)The first time a corporation issues stock to the public.Seasoned new issueSubsequent issues of new stock to the public.National Beverageissues stock11-12Stock Exchanged b/t InvestorsTransactions between two investors do not affect the corporation’s accounting records.I’d like to sell 100 shares of National Beverage stock.I’d like to buy 100 shares of National Beverage stock.11-13Most issues of stock to the public are cash transactions.Most issues of stock to the public are cash transactions.Stock Issuance National Beverage issued 100,000 shares ofNational Beverage issued 100,000 shares of$0.01 par value common stock for $10 per share.$0.01 par value common stock for $10 per share.1AnalyzeLiabilitiesAssets=Stockholders’ Equity+Cash +1,000,000 Common Stock +1,000Additional Paid-InCapital +999,0002Recorddr Cash (+A) (100,000 x $10) cr Common Stock (+SE) (100,000 x $0.01) cr Additional Paid-In Capital (+SE) (1,000,000 – 1,000)1,000999,0001,000,000Stock RepurchaseNational Beverage repurchases its own stock Stockholders11-15Repurchased stock is called treasury stock. A corporation records treasury stock at cost. Treasury stock has no voting or dividend rights. Treasury stock is not an asset. It is a contra equity account.Stock RepurchaseA corporation repurchases its stock to: Send a signal that the company believes its stock is undervalued. Obtain shares to reissue for the purchase of other companies.  Obtain shares to reissue to employees as part of stock purchase or stock option plans.11-16National Beverage reacquired 50,000 sharesNational Beverage reacquired 50,000 sharesof its common stock at $25 per share.of its common stock at $25 per share.Repurchase of Stock1AnalyzeLiabilitiesAssets=Stockholders’ Equity+Cash -1,250,000 TreasuryStock (+xSE) -1,250,0002Recorddr Treasury Stock (+xSE, -SE) cr Cash (-A)1,250,0001,250,000Reissuance of Treasury StockNational Beverage reissued 5,000 sharesNational Beverage reissued 5,000 sharesof the Treasury Stock at $28 per share. of the Treasury Stock at $28 per share. No profit or loss is recognized on treasury stock transactions.1AnalyzeLiabilitiesAssets=Stockholders’ Equity+Cash +140,000 Treasury Stock (-xSE) +125,000Additional Paid-InCapital +15,0002Recorddr Cash (+A) (5,000 x $28) cr Treasury Stock (-xSE, +SE) (5,000 x $25) cr Additional Paid-In Capital (+SE) [5,000 x ($28 - $25)]125,00015,000140,000Reporting Stock on Balance SheetExplain and analyze cash and stock dividend transactions11-20Common Stock Cash DividendsDeclared by board of directorsNot legally requiredCreates liability at declarationRequires sufficient Retained Earnings and Cash11-21If I loan your company $1,000,000,I will want you to restrict your retained earnings to limit dividend payments.Restrictions on Retained EarningsLoan agreements can include restrictions on paying dividends below a certain amount of retained earnings.Loan agreements can include restrictions on paying dividends below a certain amount of retained earnings.11-22Dividend DatesDividend DatesNational Beverage declares an $2.30 dividend on each shareNational Beverage declares an $2.30 dividend on each share of its 46,200,000 shares of common stock outstanding. of its 46,200,000 shares of common stock outstanding.1AnalyzeLiabilitiesAssets=Stockholders’ Equity+DividendsPayable +106,260,000DividendsDeclared (+D) -106,260,0002Recorddr