CHAPTER16 Stockholders' Equity Retained earnings

CHAPTER16 Stockholders' Equity Retained earnings - Chapter...

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Chapter 16 Stockholders’ Equity: Retained Earnings LECTURE OUTLINE The material in this chapter is straight-forward and can be covered in two class periods. Students are often not familiar with dividend distributions other than cash. Emphasize the distinction between stock splits and stock dividends and the different accounting procedures for large and small stock dividends. A. Retained Earnings—the basic source of retained earnings is income from operations. 1. Items that increase or decrease retained earnings are given below in T- account form. Retained Earnings 1. Net loss 2. Prior period adjustments (error corrections) and certain changes in accounting principle. 3. Cash dividends or scrip dividends. 4. Stock dividends. 5. Property dividends. 6. Some treasury stock transactions. 1. Net income. 2. Prior period adjustments (error corrections) and certain changes in accounting principle. 3. Adjustment due to quasi- reorganization. B. Dividend Policy. 1. Few firms pay out dividends in amounts equal to their retained earnings available for dividends. Among the reasons: reinvestment of earnings in assets, the desire to build up a cushion, and the "smoothing out" of dividend payments. 2. Legality of dividends: The legality of a dividend can be determined by the applicable state laws. 3. Financial condition of the firm: Before dividends are declared the availability of funds to pay the dividend should be considered.
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C. Types of Dividends. Teaching Tip
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This note was uploaded on 01/10/2011 for the course FSD 201 taught by Professor Huong during the Spring '10 term at Beacon FL.

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CHAPTER16 Stockholders' Equity Retained earnings - Chapter...

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