Lecture19 Post Class 2010.11.20

Lecture19 Post Class 2010.11.20 - Lecture 19 Shareholders...

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Lecture 19 1 Shareholders Equity
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Announcements • No office hours or recitations this week. • Re-grade deadline for Exam #2 is 12/1 4:30pm. • Exam #2 statistics • Mean: 79.7 • Median: 81 • StDev: 12.2 • 25th percentile: 72 • 75th percentile: 89 2
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Goals of Today’s Class • Shareholder’s Equity Account • Classes of Capital Stock – Common Stock – Preferred Stock • Accounting for: 3 – Cash Dividends – Treasury Stock – Stock splits – Stock dividends – Options and warrants • Accumulated Other Comprehensive Income
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Shareholder’s Equity Shareholders' Equity is a term used to describe amounts invested by the owners (equity investors) of the enterprise. In addition, the shareholders' equity represents the owners claims against the assets of the firm (relative to those of the creditors). In general, the shareholders' equity is described in terms of two basic components (although there may be, and often are, others): 4 1. Contributed Capital: Amounts invested "directly" by the owners through the acquisition of capital stock. 2. Retained Earnings: - past earnings (net assets) reinvested in the firm (rather than withdrawn in the form of dividends). - retained earnings are often described as a "temporary investment" since that amount can be withdrawn by the owners at any time in the form of dividends.
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Classes of Capital Stock Common Stock represents the basic ownership interest. Typically, only common stock conveys voting rights to its holders. And it is through the exercise of those voting rights that common shareholders exercise their right to participate in the management of the firm. Common shareholders bear the majority of the risk of the firm. 5 Their claim to the assets (and of the earnings) of the business is a residual one which is only exercisable after other claims (such as for creditors) have been satisfied. Typically, common shares are assigned a “par value” or a “stated value”. Par/stated value has a legal significance but is not a measure of economic value.
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Dividends on Common Stock Not legally required Declared by the board of directors if sufficient retained earnings and cash. Creates a liability at the time of declaration. On declaration date: Retained Earnings xxx Dividends Payable xxx On date of payment: Dividends Payable xxx Cash xxx 6
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Classes of Capital Stock Preferred Stock also represents an ownership interest in the firm. However, some of the rights associated with preferred shares supersede (or, are “preferred” to) those of common stock. Typically, the right to receive dividends (when dividends are declared) associated with preferred shares precedes that of common shares. Such preferred stock is said to be “preferred with respect to dividends”. When dividends are declared, the preferred shareholders must be paid the full amount of their dividends before any dividend amount may be paid to common shareholders. Generally, the amount of dividends to be paid to
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This note was uploaded on 03/02/2011 for the course ACCT 101 taught by Professor Armstrong during the Fall '09 term at UPenn.

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Lecture19 Post Class 2010.11.20 - Lecture 19 Shareholders...

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