ACCTNG 2400 1st Edition Lecture 22 Outline of Last Lecture I. Asset Impairment LossesII. Disposal of Tangiable AssetsIII. IntangiableAssetsa. Trademarks, copyrights, patents, franchises, licensing, goodwillb. Amortization of intangiable assetsOutline of Current LectureI. Chapter 11 – stockholders equityII. Stock authorization, issuance, and repurchaseIII. Dividends on common stockIV. Prefered stock dividendsV. EPSVI. ROEVII. P/ECurrent LectureAuthorization, issuance, and repurchase of stockThese 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.Stock Authorization - Par value – an arbitrary amount assignes to each share of stock when it is authorized- Market price – the amount that each share of stock will sell for in the market- PAR VALUE DOES NOT EQUAL MARKET PRICEStock Issuance - Initial public offering (IPO) – the first time a corporation issues stock to the public- Seasoned new issue – subsesquent issues of new stock to the public- Most issues of stock to the public are cash transactionsRepurchase of stock Reasons to repurchase stock:1. Distribute excess cash to stockholder2. Send a signal that the company believes its stock is worth acquiring3. Obtain shares to reissue for the purchase of other companies4. Obtain shares to reissue to employees as part of stock option plansDividends on Common Stock- Not legally required - Requires sufficient retained earnings and cash- Declared by board of directors- Creates liability at declarationStock Splits- An increase in the number of shares and a coresponding decrease in par value per share.Retained earnings is not affected- A stock split creates more pieces of the same piePreferred stock issuance- Priority over common stock- Usually has a fixed dividend rate- Usually has no voting rightsPreferred Stock DividendsCurrent dividend preference – the current preferred dividends must be paid before paying any dividends to common stockCumulative Dividend preference – any unpaid dividends form previous years (dividends in arrears) must be paid before common dividends are paid- If the preferred stock is noncumulative, any dividends not declared in previous years are lost permanantly.Earnings per Share (EPS)- Single most widely watched financial ratioEPS = net income / average number of common shares outstandingReturn on Equity (ROE)- Amount earned for each dollar invested by stockholdersROE = net income / average stockholder’s equityPrice/Earnings (P/E) Ratio- Measure of the value that investors place on a company’s common stockP/E = current stock price (per share) / earnings per share
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