ACG2021 Chapter 13 (Principles of Financial Accounting)

The maximum amount of shares of stock that a corporate charter allows a corporation to issue.

Stock that has been issued by the corporation but may or may not be held by stockholders

‘may or may not be held by stockholders’ means that the company could have bought it back.

Paper evidence of ownership in a corporation

Represents the individual’s ownership of the corporation’s capital

Issued stock in the hands of stockowners.

1. Vote: Stockholders participate in management indirectly by voting on corporate matters at stockholders’ meetings

2. Dividend (distribution of corporates earnings to stock holders)

3. Liquidation: Stockholders receive their proportionate share of any assets remaining after the corporation pays its debts and liquidates (goes out of business)

4. Preemptive Right: Stockholders right to maintain their proportionate ownership in a corporation (For example, suppose someone owns 5% of the company stock. If the company offers 100,000 of new stock, they must offer the stockholder the opportunity to buy 5,000 stock). However, this right is usually withheld by contracts for most corporations.

Stock that gives its owners certain advantages over common stockholders, such as the right to receive dividends before the common stockholders and the right to receive assets before the common stockholders if the corporation

Par value is generally the minimum legal price at which a corporation can originally issue (sell) shares of stock to investors.

*Par value for preferred stock is usually higher than common stock

Stock that has no par value assigned to it.

Stated Value Stock is no-par stock that has been assigned an amount similar to par value. Stated value represents the minimum amount that the corporation can issue the stock for.

*For accounting purposes the state value stock and the par value are treated the same, with the only differences being the account names

1. Paid-in Capital (contributed capital): represents the amount received from stock holders in exchange for stock

2. Retained Earnings: is equity earned by profitable operations that is not distributed to stockholders.

A firm that handles the issuance of a company's stock to the public, usually assuming some of the risk by agreeing to buy the stock if the firm cannot sell all of the stock to its clients.

The amount the corporation receives for issuing stock

The amount above par at which stock is issued.

'Paid-In Capital in Excess of Par' is a shareholders equity account

(It is the EXACT same as if the par-value was \$1, excpet that it is 'excess of stated' and not 'excess of par' for that account name)

Stock that the company has issued and then repurchased

1. Management wants to increase net assets by buying low and selling high.

2. Management wants to support the company’s stock price.

3. Management wants to avoid a takeover by an outside party by reducing the number of outstanding shares that have voting rights.

4. Management wants to reward valued employees with stock.

It has a normal balance of debit, which is the oppsoite of the normal balance for equity accounts.

Therefore, it is a contra-equity account.

NO!

The portion of stockholders' equity that cannot be used for dividends.

1. Declaration Date: On the declaration date—say, May 1—the board of directors announces the intention to pay the dividend. This creates a liability.


2. Date of Record: The date someone had purchased the dividend that makes them allowed to receive a dividend.


3. Payment Date: Date of payment of dividend

Cash Dividends has a normal debit balance, meaning that it is a contra-equity account.

It needs to be closed off at the end of the accounting perios through retained earnings.

A preferred stock dividend is in arrears if the dividend has not been paid for the year and the preferred stock is cumulative (meaning that they company must pay preferred shares the missed dividends before they can pay common stock dividends) .

Shareholders must receive all dividends in arrears plus the current year dividends before the common stockholders receive a dividend.

1. To continue dividends but conserve cash'

2. To reduce the market price per share of its stock

3. To reward investors

NO! (It does not giving up its assets, but rather just issueing new stock)

If a person has 100,000 shares, a 10% stock dividend would give them 10,000 shares.

Two types

1) Small Stock Dividends

-20% - 25% of issued and outstanding stock


2) Large Stock Dividends

-greater than 20% - 25% of issued and outstanding stock

It is record at the stocks market value

It is record at the stocks par value

An increase in the number of outstanding shares of stock coupled with a proportionate reduction in the par value of the stock.



ex)

If a company wants to reduce its stock price from \$50 to \$25, they could do a '2 in 1 split' of its commons stock. This would double the amount of outstanding shares and would cut in half the par value.



The value of the account though would not change, and therefore would not require a journal entry.

However, it would require a memorandum entry which is a note in the journal to note a significant event, but does not have a credit or debit.

1) Discoitnited operations are from when they sell or dispoe of an idetified divison of tge company.



2) Earnings per Share (EPS) is

(Net Income - Preferred Shares ) / Weighted average of common stocks outstanding


*To calculate the weighted avergae, you need to be i n advanced accounting courses.


The textbook just says for ismplicty to do (Beginning common stocks outstanding + Ending) /2

When the retained earnings account has a debit balance, meaning there is angetaive amount in the retained earnings account

Restriction of a portion of retained earnings, that is recorded by a journal entry.


ex)
The board of directors may appropriate part of retained earnings for expansion

A correction to Retained Earnings for an error made to the prior period.


ex)

Lets say last period you accidetnely recorded salaries expense as \$30,000 instead of \$40,000.

This would cause Retained Earnings to be overstated by \$10,000

Reports the amount of income (or loss) for each of the comapnies common stock outstanding shares


(Net Income - Preferred Shares) / Weighted Average of Common Stocks Outstanding

* "*To calculate the weighted average, you need to be in an advanced accounting course. The textbook just says for simplicity to do (Beginning common stocks outstanding + Ending) /2 "

Investors are paying \$31 for every \$1 the company earns per year


Low P/E ratio: Market thinks its slow growth

High P/E ratio: Market thinks strong future growth

The company makes \$0.51 profit for every \$1 shareholders have invested.

Preferred is First and Common stock is second.