ch 13 LN equity final version

ch 13 LN equity final version - 13-1Ch 13 Equity...

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Unformatted text preview: 13-1Ch 13 Equity FinancingLearning Objectives1.Use both the cost and par value methods to account for stock repurchases.2.Account for the issuance of stock rights and warrants.3.Compute the compensation expense associated with the granting of employee stock options.4.Properly record cash dividends, property dividends, small and large stock dividends, and stock splits.13-213-3Stock issuance vs. Bond issuanceTwo plans for financing 5 million dollars: Plan A: Issuance of additional 200,000 shares at $25 each Plan B: Issuance of 5 million, 8% bonds at face valueThree advantages of issuing bonds over stock issuance: Stockholder control is not affected. Tax savings result. Earnings per share may be higher.13-4Pa id-in C a pita lPa id-in C a pita lRe ta ine d Ea rning sRe ta ine d Ea rning sAccountAccountPa id-in C a pita l in Pa id-in C a pita l in Exc e s s o f Pa rExc e s s o f Pa rAccountAccountLe s s :Le s s :Tre a s ury S to c kTre a s ury S to c kAccountTwo Prim a ry S o urc e s o f Eq uityC o m m o n S to c kC o m m o n S to c kAccountAccountPre fe rre d S to c kPre fe rre d S to c kAccountAccountPaid-in capitalis the total amount of cash and other assets paid in by stockholders in exchange for capital stock.Retained earningsis net income that a corporation retains for future use.Stockholders Equity13-5Use both the cost and par value methods to account for stock repurchases.Treasury stock is stock issued by a corporation and subsequently reacquired by the corporation and held for possible future reissuance or retirement.Reported as a contra-equity account, not as an asset.Does not create a gain or loss on reacquisition, reissuance, or retirement.May decrease Retained Earnings, but cannot increase it.OBJECTIVE 113-6Reasons Companies Repurchase StockProvide shares for incentive compensation and employee savings plans.Obtain shares needed to satisfy requests by holders of convertible securities.Reduce the amount of equity relative to the amount of debt.Invest excess cash temporarily.Remove some shares from the open market in order to protect against a hostile takeover.Improve per-share earnings by reducing the number of shares outstanding and returning inefficiently used assets to shareholders.Display confidence that the stock is currently undervalued by the market.13-72010Newly organized corporation issued 10,000 shares of common stock, $1 par, at $15:Cash150,000Common Stock10,000Paid-In Capital in Excess of Par140,0002011Reacquired 1,000 shares of common stock at $40 per share:Treasury Stock...
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ch 13 LN equity final version - 13-1Ch 13 Equity...

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