Accounting 215 Autumn 2013 Chapter 11 Review Debt versus Equity Debt Less risky Less expensive More restrictive through the lender Priority payment over equity holders seniority Equity More risky More expensive Give up more control voting rights Residual claims to net assets after debt holders are paid Holders may be paid dividends Share Breakdown Authorized Shares total number of shares the board of directors allows firm to sell as equity Issued shares authorized shares sold to investors is equal to the sum of Outstanding shares and Treasury Stock Outstanding shares authorized shares that have been issued and are currently held by investors Treasury stock authorized shares that have been issued but are no longer held by investors contra equity account More Equity Terms Common Stock Preferred Stock Par Value Equity Issuance Initial Public Offering IPO Seasoned Equity Offering SEO Additional Paid in Capital or Capital in Excess of Par Stock Split Equity Compensation Terms Restricted Stock Stock Options Strike Price Exercising an Option Accounting 215 Autumn 2013 Accounting 215 Autumn 2013 Nautical has two classes of stock authorized 10 par preferred and 1 par value common As of the beginning of 2010 100 shares of preferred stock and 2 000 shares of common stock have been issued The following transactions affect stockholders equity during 2010 3 1 Issue 2 000 additional shares of common stock for 15 per share 4 1 Issue 200 additional shares of preferred stock for 30 per share 6 1 Declare a cash dividend on both common and preferred stock of 0 50 per share to all stockholders of record on June 15 6 30 Pay the cash dividend declared on June 1 8 1 Repurchase 200 shares of common treasury stock for 12 per share 10 1 Reissue 100 shares of treasury stock purchased on 8 1 for 14 per share Nautical has the following beginning balances in its stockholders equity accounts on 1 1 10 Preferred stock 1 000 Common Stock 2 000 Additional Paid in Capital 18 500 Retained Earnings 10 500 Net income for the year ended 12 31 10 is 7 150 Required 1 Record each of these transactions 2 Indicate whether each of these transactions would increase decrease or have no effect on total assets total liabilities and total stockholders equity Accounting 215 Autumn 2013 Requirement 1 3 1 10 Cash 2 000 x 15 30 000 Common Stock 2 000 x 1 00 2 000 Additional Paid in Capital difference 28 000 Issue common stock 4 1 10 Cash 200 shares x 30 6 000 Preferred Stock 200 shares x 10 2 000 Additional Paid in Capital difference 4 000 Issue preferred stock 6 1 10 Retained Earnings 4 300 shares x 0 50 2 150 Dividends Payable 2 150 Declare cash dividends 6 30 10 Dividends Payable 4 300 shares x 0 50 2 150 Cash 2 150 Pay cash dividends 8 1 10 Treasury Stock 200 shares x 12 2 400 Cash 2 400 Repurchase treasury stock 10 1 10 Cash 100 shares x 14 1 400 Treasury Stock 100 shares x 12 1 200 Additional Paid in Capital 100 shares x 2 200 Reissue treasury stock above cost Requirement 2 Transaction Total Assets Total Liabilities Total Stockholders Equity Issue Common Stock NE Issue Preferred Stock NE Declare cash dividends NE Pay cash dividends NE Purchase treasury stock NE Reissue treasury stock NE