chapter 11 Flashcards
Par value
stated value = no par = legal capital
-does not reflect current market value
Market Price =
MP = Issue Price = FMV = fair market value = cash received.
Authorized stock
(must receive permission to issue these shares from the Secretary of State where the business is incorporated)
Issued stock
sold to all investors
Outstanding Stock
has been issued and is in the hands of stockholders outside the corporation itself
Treasury Stock
stock that has been previously issued and outstanding but now held by the corporation itself
- Corporations may resell (reissue) its Treasury Stock
then it becomes issued and outstanding again.
Common Stock
features
vote for the board of directors and auditors, preemptive rights, residual assets
Rights of preferred stock
Non-voting, fixed dividends, liquidation preference to assets before common
Dividends are not an
expense
Points for Dividends
For common stockholders – are at discretion of board of directors but in practice are fairly consistent.
- Must have available cash and positive retained earnings.
3. Cash dividends – to outstanding stockholders ONLY. (Outstanding stock = issued
Dividends declared does what
reduces Retained earnings
Dividends paid
reduces cash
● Treasury Stock is a CONTRA
Stockholder’s equity account
● Issued shares =
outstanding shares + shares in Treasury
● Treasury Stock does not
get dividends, it does not get to vote for board of directors or other issues.
● Treasury stock ≠
unissued stock.
Unissued stock =
Authorized shares – issued shares
New Financing Activities
- Issue Stock
- Purchase of treasury stock or sell Treasury Stock
- Payment of cash dividends
statement of retained earnings
Rule: Dividends declared/
Shares Outstanding
statement of cash flow
Rule: Dividends paid/
Shares outstanding
Overall Entry for This Section
dr: Cash (issue price= market price) step #1
cr: Common stock (PAR) step #2
cr: Additional Paid in capital in excess of par (APIC) Step #3
(difference of MP-par)
Date of Declaration Entry
Dr: Retained Earnings or Dividends Declared(XSE)
Cr: Dividends Payable
Payment Date Entry
Dr: Dividends Payable
Cr: Cash
Dicuss Cumulative vs Non-Cumulative?
check handout
Dividend Arrears are not a liability
liability
Retained Earnings are
the accumulation of all past net income minus all past dividends declared. It is NOT a pile of money. It represents one of two major sources of funding of assets.
Book value ≠
market price
Net assets =
net worth = BV = Stockholders’ Equity = assets minus liabilities.
Dividends are not an
expense and they do not accrue
What balance sheet has?
- par value per share
- # of shares authorized
- # shares issued
- # shares outstanding
Why is treasury stock brought back?
- bonuses and stock compensation plans
- feel that its under priced
- increase e.p.s.
