Misleading such that they do not fairly present an

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Unformatted text preview: Reduces number of shares outstanding – Increases earnings per share (EPS) Communicates belief that shares are undervalued in marketplace Retained Earnings Profits reinvested into corporation All profits less dividends declared over life of corporation Usually no direct entries to retained earnings (limited exceptions) Dividends Distribution of profits to shareholders All shareholders of a class get same amount per share Can be cash, property or stock Not expensed for accounting or tax purposes Are discretionary and must be declared When declared they become a liability 3 important dates Date of declaration Date of record Date of payment Stock Dividends Issuance of a stock dividend: – Each shareholder receives additional shares – Percentage ownership remains constant – Decrease retained earnings account increase common shares account Jessica Gahtan ACTG2011 Page 17 Final Notes Chapters 8- 12 Fall 2013 – Measured at fair value just before issuance, or assigned value Stock Splits Declaration of a stock split: – Divides an entity’s shares into a larger number of unites – Like a large stock dividend – No accounting entries made – Reduces stock price in proportion – Makes shares more affordable – No real economic significance Comprehensive Income Comprehensive income – An all inclusive measure of performance – A change in equity from transactions and economic events that do not include owners – Two parts Net income Other comprehensive income (OCI) Events include: – Gains and losses on: Cash flow hedges Certain investments From translation of companies owned that are stated in foreign currencies – Gains from writing up property, plant, and equipment if elected under IFRS Contributed Surplus Captures other equity transactions: – Amounts paid for company shares in excess of the par value Jessica Gahtan ACTG2011 Page 18 Final Notes – – – – Chapters 8- 12 Fall 2013 Receipt of donated assets Equity component of some hybrid securities Repurchase of shares for more than the average per share cost Employees’ stock- based compensation Accounting Changes Consistency is important – Change in accounting policy Examples - revenue recognition, inventory cost formula, capitalization method – Change in estimate Examples – useful lives and residual values of capital assets, bad debt expense, warranty expense Change in Policy – Retroactive adjustment with restatement – Disclosure required Change in Estimate – Prospective only – No incremental disclosure required Summary of Equity Categories Leverage Use of debt to increase return to...
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