Chapter 13 Revised4

Chapter 13 Revised4 - Accounting Principles: A Business...

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Accounting Principles: Accounting Principles: A Business Perspective, 8e A Business Perspective, 8e Chapter 13: Corporations Paid-In Capital, Retained Earnings, Dividends, and Treasury Stock Revised – KRJ Jan 2008 1
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Chapter 13 Stockholders’ Equity Stockholders’ Equity Net Assets = Total Assets – Total Liabilities Stockholders’ equity = Net Assets Two categories of Stockholders’ Equity Contributed Capital Example: proceeds from issuance of common stock Retained Earnings (RE) Example: profits from operations 2
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Chapter 13 Paid-In (or Contributed) Capital Paid-In (or Contributed) Capital Amounts paid by shareholders for newly issued shares Legal Capital to the extent of par value or stated value ( Common Stock , Preferred Stock ) Amounts paid in excess of par or stated value ( Additional Paid-In Capital ) Amounts paid to corporation when its reacquired shares ( Treasury Stock ) are reissued: ( Paid in Capital from Treasury Stock ) Value of assets donated to the Corporation: ( Donated Capital ) 3
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Chapter 13 Retained Earnings ( Retained Earnings ( RE RE ) ) A New Corporation starts with RE = ZERO Net income increases retained earnings Net losses decrease retained earnings RE can be positive = Good ( credit balance ) RE can be negative = Bad ( debit balance ) A debit balance in the Retained Earnings account is called a DEFICIT Cash dividends reduce retained earnings 4
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Chapter 13 Dividends Dividends Dividends are distributions made by a corporation to its stockholders Usually paid in Cash ( Cash Dividend ) Other assets are sometimes distributed ( Property Dividend ) Sometimes additional shares of the company’s own stock are distributed ( Stock Dividend ) Sometimes shares of a newly formed corporation are distributed. New Corporation generally contains assets and liabilities of a business line of the corporation ( Spin Off Dividend ) 5
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Chapter 13 Dividends Dividends – Three Important Dates – Three Important Dates Declaration date : The date when the board of directors set and resolved to pay the dividend. Resolution is recorded in the minutes book and announced to shareholders. Legal obligation to pay created. Record Date: (2 weeks or more after declaration date ) On the date of record a snapshot of the stockholders’ ledger determines to whom the dividends will ultimately be paid. Payment Date: (2 weeks or more after record date ) The date on which the dividend payments are sent to the shareholders of record. 6
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Chapter 13 Dividends Dividends Journal entries Journal entries Dividends representing the forwarding of income to the stockholders are distributed from retained earnings When the dividend is declared, Retained Earnings is debited and Dividends Payable is credited Dividends that represent a return of contributed capital to the shareholders are distributed from Paid in Capital: When the dividend is declared,
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This note was uploaded on 04/08/2008 for the course ACT 240 taught by Professor Janson during the Winter '08 term at N. Michigan.

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Chapter 13 Revised4 - Accounting Principles: A Business...

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