Chapter 11 notes - ACCT 2101 Accounting - Kimmel, Weygandt,...

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ACCT 2101 Accounting - Kimmel, Weygandt, Kieso 5thEd Joe Patterson 1 CHAPTER 11 REPORTING & ANALYZING STOCKHOLDERS’ EQUITYIMPORTANT POINTS -Stockholders’ equity section of theBalance Sheet -Paid in capital part -Retained earnings part -Corporate form of organization -Advantages -Disadvantages -Stockholders’ rights-Number of shares authorized, issued, and outstanding -Stock values (par or stated, market, book) -Treasury stock -Preferred stock -Dividend preference (cumulative or noncumulative) -Liquidation preference -Other features -Cash dividends -Stock dividends -Stock splits -Journal entries -Issuance of stock at par -Issuance of stock above par -Purchase of treasury stock -Cash dividends (declaration date & payment date) -Balance Sheet presentation of Stockholders’ Equity-Ratios -Payout ratio -Return on common stockholders’ equity-Debt financing versus equity financing NOTE: We do not cover Appendix A (page 599). 1. STOCKHOLDERS’ EQUITY - PAID IN CAPITAL -is the amount paid in to the corporation by stockholders in exchange for shares of ownership-is sometimes called contributed capital -has many different accounts -Preferred stock -Common stock -Paid in capital in excess of par value - preferred -Paid in capital in excess of par value - common -Stock dividends distributable 2. STOCKHOLDERS’ EQUITY - RETAINED EARNINGS -is net income that is retained in the business -is net income minus net losses minus dividends from the beginning of the corporation to the present -has only one account (retained earnings) -sometimes has a restriction making a portion of the balance unavailable for dividends -results from legal, contractual, or voluntary causes -examples-condition of a loan agreement; for a future purchase of a long-lived asset
ACCT 2101 Accounting - Kimmel, Weygandt, Kieso 5thEd Joe Patterson 2 -is disclosed in the notes to the financial statements -does not mean that a certain amount of cash has been set aside for a particular purpose 3. CORPORATE FORM OF ORGANIZATION -Organization -Stockholders are the owners of the corporation; stockholders elect the board of directors. -The board of directors appoints the management. -The management makes routine operating decisions. -Corporations based on stock ownership -Publicly held - Stock is sold to the general public. -Privately held - Stock is not sold to the general public; stock is usually held by a few people. 4. CORPORATION - ADVANTAGES -Separate legal existence -A corporation is a separate legal entity that acts in its own name. -Acts of the owners (stockholders) do not bind the corporation unless the owner is an agent. -This protects stockholders from the acts of other stockholders. -Limited liability of stockholders -Creditors of the corporation normally have no claim on personal assets of the stockholders.

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Term
Fall
Professor
SMITH

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