PDF_PP_Slides_09_(APSCW_-_F2009)

PDF_PP_Slides_09_(APSCW_-_F2009) - CoreFinancialAccounting

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1 Core Financial Accounting Objectives: Handout 09 Distinguish between common and preferred stock Understand why firms repurchase stock and how to account for the repurchase, reissue, and retirement of shares Understand the accounting for cash, property, and stock dividends Understand disclosure requirements for stock options Distinguish between earnings and comprehensive income Interpret stockholders’ equity disclosures
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2 Equity US GAAP is based on the proprietary view of a firm: The firm and its owners are inseperable. Handout 09, pp. 1, 2 Under the proprietary view Owners are considered “insiders” Income (expenses) can be earned (incurred) only through transactions with “outsiders” This helps us understand why certain financing transactions generate expenses, while others do not. Equity Stockholder ʹ s Equity accounts can be classified as follows: Handout 09, p. 2 Contributed Capital Common Stock Preferred Stock Additional Paid in Capital Treasury Stock Retained Earnings Comprehensive Income
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3 Contributed Capital Accounts Common and Preferred Stock are classified as follows: Handout 09, p. 2 Authori ed Authorized Shares Issued Shares Unissued Shares Outstanding Shares Treasury Shares Authorized = Issued + Unissued Issued = Outstanding + Treasury Contributed Capital Accounts Balance Sheet Presentation: Handout 09, pp. 2, 3 Common and preferred stock accounts are stated at par value of issued shares (Par Value * Shares Issued) Additional Paid in Capital (APIC) is the difference between the total proceeds from a stock sale and the par value of issued shares. APIC is also affected by treasury stock and stock options
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4 Contributed Capital Accounts Preferred Stock: Handout 09, pp. 3, 4 Liquidation and dividend preference relative to CS Usually no voting power Other Possible Preferences: Cumulative : Unpaid dividends accumulate Convertible : Can be converted into CS Callable : Can be retired by management at a certain price Redeemable : Mandatory redemption features (similar to debt) Accounting Treatment: Journal Entries Assume YYZ Corporation issues 10,000 shares of $1 par value common stock at a price of $10 per share Handout 09, p. 4 Assets = Liabilities + CC + RE D+[C–] D–[C+] D–[C+] D–[C+] Cash Common Stock APIC – CS +$100,000 +$10,000 +$90,000 Cash = 10,000 shares * $10 = $100,000 Common Stock = 10,000 shares * $1 par value = $10,000 APIC–CS = $10,000 shares * ($10 – $1) = $90,000
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5 Contributed Capital Accounts CONSOLIDATED BALANCE SHEET Kimberly Clark Corporation and Subsidiaries December 31 Handout 09, p. 5 ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ (Millions of dollars) 1998 1997
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PDF_PP_Slides_09_(APSCW_-_F2009) - CoreFinancialAccounting

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