LN8_Ch_11.docx - ACCT 6301 Financial Accounting...

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ACCT 6301: Financial Accounting SHAREHOLDERS EQUITY OBJECTIVES STOCK AND CASH DIVIDENDS STOCK BUY-BACKS COMPREHENSIVE INCOME AND UNREALIZED GAINS/LOSSES FOREIGN CURRENCY TRANSLATION ADJUSTMENT Professor Suresh Radhakrishnan 1
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ACCT 6301: Financial Accounting Equity in Corporations The equity section for a corporation is divided into two parts: Contributed Capital (a.k.a. paid-in-capital)--this is the amount that owners have contributed Capital Stock Additional paid-in-capital Retained Earnings: this is what the company has earned over its whole life, less any dividends paid out Authorized, Issued, and Outstanding Capital Stock Authorized: The maximum number of shares that can be sold Issued: The number of shares that is sold Outstanding: The number of shares sold minus the number of shares bought back (treasury) Sale and Issuance of Capital Stock An initial public offering (IPO) is the very first time a corporation sells stock to the public. Professor Suresh Radhakrishnan 2
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ACCT 6301: Financial Accounting Professor Suresh Radhakrishnan 3
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ACCT 6301: Financial Accounting Common Stock Basic voting stock of the corporation Ranks after preferred stock for dividend and liquidation distribution. Dividend rates are determined by the board of directors based on the corporation’s profitability. Par Value and No-par Value Stock Par value Is a nominal value per share of capital stock specified in the charter. Has no relationship to market value. Serves as the basis for legal capital. Legal capital is the amount of capital, required by the state, that must remain invested in the business. It serves as a cushion for creditors. Professor Suresh Radhakrishnan 4
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ACCT 6301: Financial Accounting Par Value and No-par Value Stock No-par value is capital stock that does not have an amount per share specified in the charter. When no-par stock is issued by a corporation, the amount of legal capital is defined by the state. Stated value is an amount per share that is specified by the corporation when it issues no- par stock. Accounting for the Issue of Common Stock When stock is issued, the equity account Common Stock is increased for the par or stated value of the stock. If the stock sold for more than par, the additional amount increases the Paid in Capital in Excess of Par, Common Stock. Professor Suresh Radhakrishnan 5
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ACCT 6301: Financial Accounting Example: ABC Co. issued 300 shared of $10 par common stock for $12 per share. Transactions Analyses Date Accounts 1 A Cash 3,600 Total assets (A) 3,600 = L Total Liabilities (L) + S E Common Stock 3,000 Paid in capital in excess of par 600 Total shareholders' equity (SE) 3,600 Total SE + L 3,600 Professor Suresh Radhakrishnan 6
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ACCT 6301: Financial Accounting Treasury Stock A corporation’s own stock that had been issued but was subsequently reacquired and is still being held by that corporation.
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