Ch 11 Shareholders' equity Flashcards
Legal Capital
The amount that is recorded in the common share account when shares are first issued.
Par value of shares
The specific dollar value assigned in a company’s articles of incorporate to each share.
Any amount received from shareholders on share issuance in excess of this par value amount was considered to be _________________
contributed surplus
No par value shares
Shares that have no par value assigned to them in the articles of incorporation.
Prospectus
A document filed with a securities commission by a corporation when it wants to issue public debt or shares to the public
Pre-emptive right
The right of shareholders to share proportionately in new issuances of shares so that their ownership interest will not be diluted by future share issuances. Synonym for anti-dilution provision.
Minority Interest
A block of shares owned by an investor that represents less than 50% of the outstanding shares. Synonym for non-controlling interest.
Dual class common shares
A class of common shares granting special voting rights so that the holder is entitled to more than one vote for each of the common shares owned. Also known as multiple voting shares or super voting shares.
Rate reset preferred shares
Characteristic of preferred shares by which they pay a fixed dividend from their issuance until a pre-established reset date when a new fixed rate will be established.
Perpetuals
Preferred shares that pay a fixed dividend for as long as the shares remain outstanding.
Floating rate preferred shares
Amount of dividend paid on preferred shares that changes as interest rates change
Hybrid securities
Shares or investments that include features of both debt and equity.
Cumulative preferred shares
Preferred shares that accumulate dividends in periods even if there are no dividends declared. These accumulated undeclared dividends, called dividends in arrears, must be paid before a dividend can be declared for common shareholders.
Dividends in arrears
Dividends on cumulative preferred shares that have not yet been declared from a prior year.
Non-cumulative shares
Shares that do not guarantee payments of dividends in arrears if no dividend payment is declared
Redeemable Preferred Shares
Preferred shares with a feature that gives the issuer the right to repurchase (or redeem) them from shareholders at specified future dates and amounts.
Retractable Preferred Shares
Shares that can be sold back to a company (retired) at the shareholder’s option. The price that must be paid for them and the periods of time within which they can be sold are specified in the articles of incorporation.
Convertible Preferred Shares
Preferred shares that are exchangeable or convertible into a specified number of common shares.
Participating Preferred Shares
Preferred shares with a feature that increases the dividend rate on the shares so that it results in dividends equivalent to those being paid to common shareholders.
4 key dates in dividend declaration process
1) the date of declaration
2) the ex dividend date
3) the date of record
4) the date of payment
The date of declaration
The date on which the board of directors votes to declare a dividend. On this date, the dividend becomes legally payable to shareholders and a liability to the company.
ex dividend rate
The date on which shares are sold in the market without the most recently declared dividend.
date pf record
shareholders on the date of record will be entitled to receive the dividend payment.
the date of payment
The date on which a dividend is paid to shareholders.
date of declaration journal entry
DR Dividends Declared
CR Dividends Payable
date of payment journal entry
DR Dividends Payable
CR Cash
Cash dividends
dividends paid in cash
Stock dividends
dividends paid in stocks
3 step aproach for declaring stock dividends
Step 1.
Determine the number of shares issued and outstanding at the time the stock dividend is declared.
Step 2.
Determine the number of new shares being issued as a result of the stock dividend.
Step 3.
Determine the value of the new shares being issued.
date of declaration of stock dividends journal entry
DR Stock Dividends Declared
CR Stock Dividends Issuable
date new shares are issued stock dividends journal entry
DR Stock Dividends Issuable
CR Common Shares
Stock split
A distribution of new shares to shareholders. The new shares take the place of existing shares, and existing shareholders receive new shares in proportion to the number of old shares they already own.
Memorandum Entry
An entry made to record a stock split. No general ledger accounts are affected; only the record of the number of shares issued is affected.
Reverse Stock Split
A stock split that decreases the number of outstanding shares and has the effect of increasing share prices. Reverse stock splits are done based on a specified ratio, such as one-for-two or one-for-five. Synonym for consolidation.
