Chapter 10 lecture notes

Chapter 10 lecture notes - Chapter 10 Reporting and...

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Chapter 10 Reporting and Understanding Shareholders’ Equity
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In Chapter 10 You will learn how a company accounts for and reports: o Contributions from Stockholders o Payments of Dividends o Retained Earnings
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Equity Transactions If the transaction is between the business and non-owners, it is an Income Statement transaction. If the transaction is between the business and its owners, it is a Statement of Shareholders’ Equity transaction
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Stockholders’ Equity The claims by the stockholders result from Contributed Capital – assets stockholders contributed in exchange for shares of stock (also called Paid-in-Capital) Retained Earnings – cumulative profitability of the corporation in excess of dividends
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Let’s take a closer look at Contributed Capital Contributed Capital is divided into two parts: o Contributed Capital – The par value of the shares that have been issued o Additional Paid in Capital – The amount in excess of par
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Authorized and Issued Stock Authorized 1,000,000 Shares 300,000 shares issued Stockholders
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Authorized, Issued and Outstanding Stock Authorized 1,000,000 Shares 300,000 shares issued Stockholders 300,000 shares issued 290,000 shares outstanding
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Common Stock o All Corporations must have Common Stock. o It is the most widespread form of ownership in a corporation. o Grant Ownership rights to the common stockholder.
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Rights of Common Stockholders o Vote for members of the board of directors. o Share in the corporation’s profits . o Share in any assets left if the corporation has to dissolve. o Acquire more shares when the corporation issues new stock (Pre-emptive right.
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Par Value of Common Stock o The Corporate Charter determines a fixed per-share amount called the par value of the stock. o Par Value is an arbitrary amount and has no real meaning in today’s business environment. o Is used when recording the journal entry for the issuance of stock
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Additional Paid in Capital Difference Cash (or Other Assets) Common Stock The Journal Entry to Record Issuance of Common Stock Fair Market Value of Assets # Shares Issued X Par This Transaction increases Assets and Stockholders’ Equity
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Chapter 10 lecture notes - Chapter 10 Reporting and...

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