BAT
CHAPTER 14 NOTES.pdf

# 2 additional contributed capital includes the amounts

• 14

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2. Additional contributed capital: Includes the amounts paid over par value. Results only if par value exists. Presentation Bob Inc.: - Preferred shares section discloses that the dividend rate is \$9 per annum - 10,000 shares of no par value have been authorized - 6000 preferred shares issued - Average issue price is \$770,000 / 6000 issued preferred shares = \$128.33 - Common shares have \$5 stated value - Unlimited amount of shares - 400,000 have been issued - Average issue price is ((\$2,000,000 + \$860,000) / 400,000) = \$7.15 d

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Using the Information in the Financial Statements Two important ratios come from partial balance sheet: return on equity ratio and book value per share Return on Equity Return on equity also known as return on investment. Ratio measures how many dollars are earned for each dollar invested by shareholders. Net Income / Average Shareholders’ Equity = Return on Equity (%) Book Value Per Share Represents the equity a common shareholder has in the net assets of the corporation from owning one share. Net assets (assets less liabilities) of a corporation equal total shareholders’ equity. Formula for when company has one class of shares: Total Shareholders’ Equity / No. Common shares = Book Value per share Since preferred shareholders have first claim on net assets, their equity must be deducted from total shareholders’ equity to calculate equity that applies to common shares. Includes following steps: 1. Calculate the preferred shareholders’ equity . The equity is equal to the sum of legal capital of the preferred shares plus any dividends in arrears. 2. Determine shareholders’ equity . Subtract preferred shareholders’ equity from total shareholders’ equity. 3. Determine book value per common share . Divide common shareholders’ equity by the number of common shares. The book value per preferred share is calculated by dividing the preferred shareholders’ equity by number of preferred shares.
Book Value versus Market Value Book value per share and market value rarely same. Book value is based on recorded historical costs. Market value reflects subjective judgements of shareholders and potential investors about company’s future earnings and dividends.

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• Summer '14
• staff
• Shareholders’ Equity

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