Chapter 12 Reporting and Interpreting Owners' Equity

Chapter 12 Reporting and Interpreting Owners' Equity -...

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Chapter 12: Reporting and Interpreting Owners' Equity November 22, 2013 9:37 AM OWNERSHIP OF A CORPORATION Benefits of Share Ownership Owners of common shares receive benefits: o Management voice May vote at shareholders' meeting in major issues concerning management of corporation o Dividends Receive proportionate share of distribution of corporation's profits o Residual Claim May receive proportionate share of distribution of remaining assets upon liquidation of company Shareholders o Elect board of directors (internal managers and external non-managers) Appoints president Employs VP (production, marketing, finance, and controller) Authorized, Issues, and Outstanding Shares Authorized number of shares: maximum number of shares a corporation can issue Issued shares: number of shares that have been issued Outstanding shares: total number of shares owned by shareholders on any particular date Earnings Per Share (RATIO) Earnings per Share = ___Profit Available to Common Shareholders___ Average Number of Common Shares Outstanding Shares of different companies have different prices, making EPS comparisons less meaningful than other measures of profitability Can be misleading if there are significant differences in market values of shares being compared COMMON SHARE TRANSACTIONS Common shares: basic voting shares issued by a corporation called residual equity b/c they are after preferred shares in terms of dividend and liquidation distributions No Par Value and Par Value Shares Par Value: value per share specified in the charter (basis for legal capital) No Par Value: no par value specified in corporate charter
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Legal Capital: permanent amount of capital that must remain invested in the business (cushion for creditors) Initial Sale of Shares Initial public offering (when company first goes public) Additional sales of new shares are called seasoned new issues or secondary share offerings Journal entry: DR Cash 2,200,000 CR Common Shares 2,200,000 Sale of Shares in Secondary Markets Investor Jon sells 1,000 of BCE's common shares to Jennifer o
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