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Chapter 15 - Stockholders Equity
Terms in this set (25)
When only one value of preferred or common stock is known you use which method?
Advantages of corporations
limited liability and raising capital is easy
Disadvantages of corporations
regulation and double taxation (net income and dividends)
Publicly owned corps traded on:
stock exchanges and over the counter (pink sheets)
Paid in capital is
amount provided by stock holders for use in the business
Common stock- voting rights this is residual interest after debt and ___________ _____________-
multiple classes of common stock Ex)
A gets 1 vote but B gets 10 votes.
Preferred stock get paid mostly in _________. and do not get to ____________
Accumulated Other Comprehensive Income (AOCI)
Includes changes in SHE that are not included in net income (unrealized gain/loss)
AOCI is reported on the _____1____ and OCI is reported in the ____2_______
1. BS 2. IS
Example: company issues 80,000 shares of 7 par stock for 6 per share. what journal entry is made on issuance of stock?
Cash (80000 x 6) 480,000
Stock Disc (560000-480000) 80,000
Com Stock@par(80000 x 7) 560,000
When both values are known for common and preferred stock which method do you use
Example pf proportional method: issued 500 shares of 10 par common and 100 shares of 100 preferred for a lump sum of 100,000. FV of common stock is 165 per share and FV of preferred is 230 per share. What is journal entry for the issuance?
1. total FV (165 x 500) + (230 x 100) =105,500
2. % common (165 x 500) / 105,500= 78.2 %
3.) allocate to common: 78.2% X 100,000 = 78,200
4.) % preferred (230 X 100) / 105,500= 21.8%
5. allocate to preferred: 21.8% x 100,000= 21,800
Dr. Cash 100,000
Cr. com @ par 5000
Cr. APIC comm 73200
Cr. Pref @ par 10000
Cr. APIC Pref 11800
Example of incremental method: issued 500 shares of 10 par common and 100 shares of 100 preferred for a lump sum of 100,000. FV of common stock is 165 per share and FV of preferred unknown. What is journal entry for the issuance?
1. Allocate to comm 165 x 500 = 82,500
2. allocate to pref 100,000- 82,500= 17,500
Dr. Cash 100,000
Cr. comm @ par 5000
Cr. APIC comm 77500
Cr. Pref @ par 10,000
Cr. APIC pref 7500
why is it called preferred stock?
dividend preference, preferential claim to company's assets, no voting rights, could be callable, and could be converted.
what industries issue preferred stock the most?
Banking and insurance because equity issuance look more favorable bc they do not increase the leverage ratio.
Reasons for buybacks
increase EPS and ROE, provide tax efficient distributions of excess cash to shareholders, acquire stock for employee compensation contracts, thwart takeover attempts, improve market for the stock.
Treasury stock is a contra ______ account meaning that it ___________ equity
equity , reduces
if you are short on treasury stick what account do you use o make up the difference?
Dividends are distributions of assets the company.....
has earned on behalf of its shareholders. most companies view RE as the amount available for dividends.
when do you record JE for cash dividends?
when they are declared (Dr. RE and Cr. Div pay) and when they are paid (Dr. Div pay and cred Cash)Wehn
When stock dividend is MORE than 20-25% of shares outstanding, accounting for the divided is based on
par value of stock issued
When stock dividend involves LESS than 20-25% of shares outstanding, accounting for the dividend is based.......
on FMV of the stock issued.
Accounting for stock splits.....
Par value decreases, total # of shares increases, tot SHE does not change, composition of equity does not change, and no JE.
Accounting for stock dividends....
par value does not change, tot # of shares increase, Tot SHE does not change, Composition of equity changes (less RE - more stock), stock dividends require JE.
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