ACCT 3001 CH15

ACCT 3001 CH15 - ChaEter 15 - Stockholders‘ Equiy C5...

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Unformatted text preview: ChaEter 15 - Stockholders‘ Equiy C5 Rights: 0 Vote for BOD 0 Share in corporate earnings 0 Preemptive right a Share in assets upon liquidation (maybe) P5 Rights: 0 Receive dividends first 0 Nonvoting - Share in assets upon liquidation (maybe) Terms: 0 Authorized stock — maximum # shares corp. is allowed to sell 0 Issued stock - stock that has been sold 0 Outstanding stock - stock that is in the hands of the shareholders. Not all issued stock is outstanding. 0 Treasury stock - stock that has been repurchased by the co. T5 is issued but not outstanding. Recording The issuance of stock (review) Examples: Ex. Co. X issued 1,000 shares of $1 par CS for $5 per' share. Mom) 15,000 C3. 1,000 Adol’i ’RLC- 4/000 (:34 :A‘MV 10003 Co. X issued 10,000 shares of $1 par CS for $8 a share. GGLW C .s £01000 (Pic/sag “IO/000‘ Co. X issued 5,000 shares of no par‘ CS for $2 a share. 0(1ng @000 0.6. [mo rpm» \OIOOO Co. X issued 5,000 shares of $10 per PS for' $15 a share. 00m» 16,000 (Mww 9m ck. 60,000 (Mo. r 17S (96,6155 Lump—Sum Sales of STock Example 1. Assume a company issues 1,000 shares of $10 s’ra’red value common stock having a marke’r value of $20 a share, and 1,000 shares of $10 par value preferred s’rock having a marke’r value of $12 a share, for a lump sum of $30,000. Record The journal en’rry. 0.3- it LOCO-K $0: $10,000. 12% lmb y la: (glggo fl 33,0130 / v, , , o, as. égal >< 3am L MW (ls, W x gabaorlwea 3e 05, [0,000. a» mafia. W790 llS- (0,061) WC ' “l 5 W513 URWQJ-rll mall Ward Example 2. Assume a company issues 1,000 shares of $10 sfa’red value common s’rock having a marke’r value of $20, and 1,000 shares of $10 par preferred s’rock having no established marke’r value, for a lump sum of $30,000. Record the journal en’rry. a; , \ incremwiafi WW?le wflw [do-hm ij kmw 1,! {€19} . (1.1-. 6! i~,.-.,r “31¢ 5 ",3, gm 04.9%,, {T5, 0% @1000 I “EEO—rail): lo 1 if [5 pl C—(‘S- (lfouox l0) lD,ODD of} Mylo): W; W, a £51 Cos’rs of issuing s’rock DireC'l' cos’rs incurred to sell stock should be a reduction of amoun’rs paid in (Le. reduc’rion of paid—in capi’ral) Examples of direc’r cosfs = underwri’ring cos’rs, accounl'ing and legal fees, prinl'ing costs, and faxes MuaMC l>l CL CS ><K [hm/e XX STock Issued in Noncash TransacTions Rule: Record sTock issued for services or properTy aT eiTher The fair value of The sTock issued or The fair value of The consideraTion received, whichever is more clearly deTerminable. Assume a company issues 2,000 shares of $1 par common sTock in acquiring land. The sTock has a currenT price of $50 per share. The enTry To record The acquisiTion of land is as follows. LOU’W Cl l 00) CS (9000 ©le 0%! Wwa WhaT if The value of The sTock is noT known, buT The land has a FMV of $90,000? Loan 010,000 "Di C, as, [email protected], S’rock Regurchases Why does a co. buy back s’rock? Things To remember abou’r T5: 0 No dividends, no vo’ring power 0 NOT an asse’r - reduc’rion of SE 0 No gain/ loss on reacquisifion, reissuance, or reTiremen’r 0 RE can be decreased by T5, but never increased Two methods for recording T5: 1. Cos’r meThod (MOST COMMON) 2. Par value meThod Cos1' MeThod 2008: Co. A issues 10,000 shares of CS, $1 par m” $15. 05. 10,000 W 140,009 . ‘4, ,COMW “NH: @‘Q’W TS ’ “WW 2009: Reacquir-es 1,000 shares of T5 01‘ $40 per' share. T5 - 4mm) CW “has” 2009: Sold 200 shares of T5 at $50 per- share. “3,000 . TS. (adwfl @000 2009: Sold 500 sha’ggswf T5 (11' $34 per' share. 4w ' / fl 0060M {$909393 0% on . «$3; “pic—6T5 [gin w W) - Du @Lfiifluflt- 2009: Retired remaining 300 shares of TS. 5r $00, . .‘ %?¢ 9%”; 417/00 ‘ 1,600 W T3. mum» 13,000, (W W66 or In-class exercise: The sTockholders' equiTy of Thomas Company as of December 31, 2008, was as follows: él 40/005 , “ . . 191/ a CS, $1 par, 275,000 auThorIzed, 240,000 Issued $ 240 000 M a and ouTsTandin 3,36; figswt Paid—in caiTal in excess of ar - CS 3,840,000 900.000 On June 1, 2009, Thomas reacquired 15,000 shares of iTs common sTock aT $16. The following TransacTions occurred in 2009 wiTh regard To These shares. July 1 Sold 5,000 shares aT $20. Aug. 1 Sold 7,000 shares aT $14. SepT. 1 ReTired 1,000 shares. Required: 1. Using The cosT meThod, prepare The journal enTries To record all Treasury sTock TransacTions in 2009. 2. Prepare The sTockholders' equiTy secTion of The balance sheeT aT December 31, 2009, assuming Retained Earnings of $1,005,000 (before The effecTs of Treasury sTock TransacTions). SEN-26 u} that . r I l 1’?) ( lamp @3; W5 (140wa V W 240, GUI) “ll \\09\ 0M1.) (rams @ 20> loo-pm T3 @3300 K ND @0, 050 W075},- 210133“ @I “56‘ . 6mm W hamscg I4? (425% rm (VT/“b (Diva ' I, (49.,ch T3 (7030 K Ibo) 6% \0q 1 (2 " "3’ - O00 Omsk Raw :prvu. 03 (4000 k * wfi , _ CPm—CSOmDfiImB MOW >556”- CP\C “T3 (13th T5, ([6me (Lb [Lo/ODD Preferred S’rock - Expanded Discussion 0 Dividend amoun1' s1'a’red as a $ amoun’r per share or as a “X: of par value 0 Cumula’rive vs. noncumulafive o Dividends in arrears Example: AT The end of 2009, C0. X has 40,000 shares of $1 par CS and 2,000 shares of $10 par, 5% PS ou’rs’randing. The board of directors approves a dividend of $25,000. “NM 0 "3 l w oil [ES 60/0581“) C Jab WW \‘ D [in diVl x S, C3 526,000 r 1,000 : 34,009 (:5. ax‘l . , db W & lag—ES) / “40039 0200‘?!) allowed WM Q0000! 1,000 :fivfif % Q5 ’Divi‘dwl’i O‘rher features: 0 Par’ricipaTing PS 0 Conver’rible PS 9» CW *0 33 - Callable PS 4r 000m mow/v 0 Redeemable P5 lflVflS‘l‘w cm 171ml?- 10 Retained Earnins Decreases Increases Error corrections (PPA) Error corrections (PPA) Some changes in accounting Some changes in accounting principle principle Net loss Net income Cash dividends Stock dividends Property dividends Liquidating dividends Stock conversions Treasur stock transactions Deficit Balance Normal Balance Restricted Retained Earnings - restricted for a specific purpose, usually as part of a loan agreement. To give a rag/1m OliviOUD/Ld/ é? coma-mg magi be We! Q vim/Log: have mun/Lay» (EM/1N G79 mils-63c heme {a (Weevil Wiser-cc, m 11 Dividends Types of Dividends: 1. Cash I 2. ProperTy 41ng mar lT/wm 096m 3. LiquidaTing 4. 51'0Ck +gw4 W? [3mm Sflmclc. Three daTes are imporTanT (cash dividend used as example): 1. DeclaraTion DaTe - The daTe The BOD declares a dividend. RE (Dividends) xx Dividends Payable xx 2. DaTe of record - No enTry is made on This daTe. IdenTify The owners of The sTock - These individuals will receive The dividend. 3.PaymenT DaTe - DaTe dividend is paid. Dividends Payable xx Cash xx 12 ProperTy Dividends A disTribuTion To sTockholders ThaT is payable in some asseT oTher Than cash. These Transfers should be recorded aT FMV and a gain/loss recognized for The difference beTween The carrying value and The FMV of The asseT disTribuTed. Assume Big Corp. owns 10,000 shares of Small 60., carrying value $250,000, currenT fair markeT value $300,000, or $30 per share, which iT wishes To disl'ribul'e To iTs sTockholders. There are 100,000 shares of Big Co. sTock ouTsTanding. Accordingly a dividend of 1/ 10 of a share of Small Co. sTock is declared on each share of Big Co. sTock ouTsTanding. Prepare The enTries for Big. Co. 1. DeclaraTion of Dividend INNSJFWMT in girl/Low (’0. 60,050 av A f , din/1,1 & no om (Mel mm s m goo, 06b. 12mm,» Cwuvx on me 50,0151) “Pl allow E Wolf) Div. lOl-P- 2. PaymenT DaTe {Pm plv $01);de imam In gill/kw - 15W; DUO- 13 Liguida’ring Dividends Disl’ribul'ions representing a return 'I'o sTockholders of a portion of Their invesTmenT. A liquidaTing dividend is accounl'ed for by reducing PIC. Example: McChesney Mines Inc. issues a cash "dividend"1'o i’rs CS shareholders of $1,200,000. The cash dividend announcement noted Thai $900,000 should be considered income and The remainder'a re’rurn of capiTal. En’rries are as follows: DeclaraTion Dal'e: FINE OlODJOUD @lC'Cg 509 5"“) i l, @015) m) "DW. 14 STock Dividends A pro raTa disTribuTion of The corporaTion's own sTock To sTockholders. IT resulTs in a decrease in RE and an increase in paid-in capiTal. Example: Assume you have a 5% ownership in Morgan Co. You own 50 of The company's 1,000 shares of ouTsTanding common sTock. If The company were To issue a 10% sTock dividend or 100 shares (1,000 x 10%), you would receive 5 addiTional shares (100 sh x 5%). However, your ownership percenTage would noT change. You would own 55 of The company's 1,100 shares ouTsTanding. A 5% ownership in Morgan Co. Two Types of sTock dividends: 1. Small sTock dividend (< 25%) 2. Large sTock dividend (>:25%) Use The following SE secTion for examples of small and large sTock dividends and sTock spliTs. 15 E mcficfiflzo a 832 508.8 6322,55 £888 58 o; .8 "tut-OD U$+3£L+COU >4:sz MLmEosqum. 1. Small sTock dividends are recorded aT markeT value. Example: On. Dec 20“", Co. X declares a 15% sTock dividend. On Dec 20'rh The markeT value of The sTock is $15 before The sTock dividend. How many shares are going To be disTribuTed? WhaT is The enTry on The declaraTion daTe? DisTribuTion daTe? 30,000‘él6? 47900 \< Its 7015500 (DMCM’CH‘ “3k Meta @001le IUGLQD‘ "Q‘g metro C$ 'D‘wl . Dis "l7; laudable (fittizjbx-‘WOWO 465000- ‘ch — CS @9330. (Dfi'fi'slouslw W . (is; 11v. “Draw. 443,000. 03> 45,000 If The BS is prepared afTer The declaraTion of a sTock dividend buT before issue of The shares, C5 Dividends DisTribuTable is reporTed in The SE secTion as an addiTion To capiTal sTock ouTsTanding. 17 "or value 2. Large stock dividends are recorded (split-up effected in the form of a divi On Dec. 20“", Co. X declares a 30% stock diuidend. On Gay Dec. 210'rh the market value of the stock is $}>5:% Wk many shares agggoing to be distributed? What is the entr on dEclaration date? Distribution date? ‘ AL * / k Glow K ’Z 01000 fi‘sWS/Qr KiO ($06,) ($0,000. (De cflocr oer} avx bate- ME Wan k. €310,013?) C75 fiDw. firstzibwl‘ QOJOW (Drain/Eb. (DELL? CS 'baa. 53‘9va CS . 18 Stock Splits Increases the # of shares authorized, issued 6: outstanding, but at the same time has a proportionate reduction in the par or stated value of the stock. lib JE. . , Example: On Dec. 20*“, Co. X declared a 2:1 stock split. 60,0013 Momma! . x 81/; r loom gal-mm; 3120193 teem-2H m x 9/: 3 (90,551). {Coma a M lo ma r ’56 W- Summary Illustration 15—11, page 749 19 In—class exercise: The capiTal accounTs for Shop RighT MarkeT on June 30, 2009, are as follows: ' $ 200,000 C5, $5 par, 40,000 shares issued and ouTsTandm Paid-in caTal in excess of ar 835 000 2.160.000 Shares of The company's sTock are selling aT This Time aT $22. WhaT enTries would you make in each of The following cases? 1. A 10% sTock dividend is declared and issued. 2. A 50% sTock dividend is declared and issued. 3. A 2-for-15Tock SpliT is declared and issued. 5 Ell-36 ' o [1295,5150- sow» 90,0151) 0 5% 40mm 8: o?o,oo> slow. a 36 pm” JED/671° W. {00,6150 Whig, C3 "Div d6?“ mom 7% all," r , rQ\C’ DW -FDl§'l’, [(5131601) \\\° ()9. WW3- 20 9) ~7 om%zilcl<1 ...
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This note was uploaded on 12/14/2010 for the course ACCT 3001 taught by Professor Moffitt during the Summer '08 term at LSU.

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ACCT 3001 CH15 - ChaEter 15 - Stockholders‘ Equiy C5...

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