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Ch 12 - Retained Earnings(2)

Splits its 50000 shares of common stock on a 2 for 1

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Unformatted text preview: f issuing a 10% stock dividend, Co. splits its 50,000 shares of common stock on a 2-for-1 basis. Distinction between Stock Splits & Stock Dividends The Difference Lies In: • The Intent of Management, & • The Size of the Distribution A Stock Dividend usually • Intended as Substitute for cash dividend & • Is small enough that market price is relatively unaffected • Does Not result in a Change In Par Value Stock Splits result in a reduction in par value of stock Dividends Dividends Differences Between The Effects Of Stock Dividends & Stock Splits. Summary of Effects of Stock Dividends & Stock Splits Small Stock Dividend Total Stockholders' Equity Common Stock Paid-in Capital Retained Earnings Number of Shares Outstanding Par Value per Share Large Stock Dividend Stock Splits No Effect No Effect No Effect Increases Increases Decreases Increases No Effect Decreases No Effect No Effect No Effect Increases Increases Increases No Effect No Effect Decreases Prior Period Adjustments Prior Period Adjustments The Correction of an Error identified as affecting Net Income in a Prior Period Adjust Retained Adjust Earnings Retroactively The Adjustment should be Disclosed Net of any Taxes Statement of Retained Earnings with Prior Period Adjustment Rockford Company Statement of Retained Earnings For the Year Ended December 31, 2009 Retained earning, 12/31/08 as reported $ 1,250,000 Prior period adjustment for accounting error (65,000) Retained earnings, 12/31/08 as restated 1,185,000 Net income for 2009 327,500 Subtotal 1,512,500 Less: dividends: Cash dividends (100,000) Stock dividend (200,000) Retained earnings, 12/31/09 1,212,500 Restrictions of Retained Earnings If I loan your Co. $1,000,000, I will want you to restrict your retained earnings in order to limit dividend payments. Loan agreements can include restrictions on paying dividends below a certain amount of retained earnings. Presentation of Stockholders’ Equity Presentation of Stockholders’ Equity Balance Sheet Presentation Comprehensive Income Comprehensive Income Normally, there are 3 ways that Financial Position can change Issuance of New Issuance Shares of Stock Net Income or Net Loss Payment of Dividends GAAP excludes some unrealized items from income, such as the change in market value of...
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