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1、C H A P T E R 15STOCKHOLDERS EQUITYIntermediate Accounting13th EditionKieso, Weygandt, and Warfield Discuss the characteristics of the corporate form of organization.Identify the key components of stockholders equity.Explain the accounting procedures for issuing shares of stock.Describe the accounti

2、ng for treasury stock.Explain the accounting for and reporting of preferred stock.Describe the policies used in distributing dividends.Identify the various forms of dividend distributions.Explain the accounting for small and large stock dividends, and for stock splits.Indicate how to present and ana

3、lyze stockholders equity.Learning ObjectivesIssuance of stockReacquisition of sharesThe Corporate FormCorporate CapitalPreferred StockDividend PolicyPresentation and AnalysisState corporate lawCapital stock or share systemVariety of ownership interestsFeaturesAccounting for and reporting preferred s

4、tockFinancial condition and dividend distributionsTypes of dividendsStock splitDisclosure of restrictionsPresentationAnalysisStockholders EquityThree primary forms of business organizationThe Corporate Form of OrganizationProprietorshipPartnershipCorporationLO 1 Discuss the characteristics of the co

5、rporate form of organization.Special characteristics of the corporate form:Influence of state corporate law.Use of capital stock or share system.Development of a variety of ownership interests.State Corporate LawThe Corporate Form of OrganizationLO 1 Discuss the characteristics of the corporate form

6、 of organization.Corporation must submit articles of incorporation to the state in which incorporation is desired.General Motors - incorporated in Delaware.U.S. Steel - incorporated in New Jersey.Accounting for stockholders equity follows the provisions of each states business incorporation act.Capi

7、tal Stock or Share SystemThe Corporate Form of OrganizationLO 1 Discuss the characteristics of the corporate form of organization.In the absence of restrictive provisions, each share carries the following rights:To share proportionately in profits and losses.To share proportionately in management (t

8、he right to vote for directors).To share proportionately in assets upon liquidation.To share proportionately in any new issues of stock of the same classcalled the preemptive right.Variety of Ownership InterestsThe Corporate Form of OrganizationLO 1 Discuss the characteristics of the corporate form

9、of organization.Common stock represents basic ownership interest.Bears ultimate risks of loss.Receives the benefits of success.Not guaranteed dividends nor assets upon dissolution.Preferred stock is created by contract, when stockholders sacrifice certain rights in return for other rights or privile

10、ges, usually dividend preference. Contributed CapitalRetained EarningsAccountAdditional Paid-in CapitalAccountLess:Treasury StockAccountTwo Primary Sources of EquityCorporate CapitalLO 2 Identify the key components of stockholders equity.Common StockAccountPreferred StockAccountAssets Liabilities =

11、EquityIssuance of StockAccounting problems: Par value stock.No-par stock.Stock issued with other securities.Stock issued in noncash transactions.Costs of issuing stock.LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalShares authorized - Shares sold - Shares issuedP

12、ar Value StockLow par values help companies avoid a contingent liability. Corporations maintain accounts for:Preferred Stock or Common Stock.Additional Paid-in CapitalLO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalBE15-1: KC Corporation issued 300 shares of $10 p

13、ar value common stock for $4,500. Prepare KCs journal entry.Cash4,500Common stock (300 x $10) 3,000Journal entry:Additional paid-in capital1,500LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalNo-Par StockReasons for issuance:Avoids contingent liability.Avoids conf

14、usion over recording par value versus fair market value.LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalSome states require that no-par stock have a stated value. BE15-2: Swarten Corporation issued 600 shares of no-par common stock for $8,200. Prepare Swartens jou

15、rnal entry if (a) the stock has no stated value, and (b) the stock has a stated value of $2 per share.Cash8,200Common stock 8,200Journal entry:LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalCash8,200Common stock (600 x $2) 1,200Additional paid-in capital7,000a.b.

16、Stock Issued with Other SecuritiesTwo methods of allocating proceeds:the proportional method andthe incremental method.LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalBE15-4: Ravonette Corporation issued 300 shares of $10 par value common stock and 100 shares of $

17、50 par value preferred stock for a lump sum of $13,500. The common stock has a market value of $20 per share, and the preferred stock has a market value of $90 per share. LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalProportional MethodLO 3 Explain the accountin

18、g procedures for issuing shares of stock.Corporate CapitalCash13,500Preferred stock (100 x $50) 5,000Journal entry (Proportional):Additional paid-in capital-preferred3,100Common stock (300 x $10) 3,000Additional paid-in capital-common2,400BE15-4: Ravonette Corporation issued 300 shares of $10 par va

19、lue common stock and 100 shares of $50 par value preferred stock for a lump sum of $13,500. The common stock has a market value of $20 per share, and the preferred stock has a market value of $90 per share. BE15-4: (Variation) Ravonette Corporation issued 300 shares of $10 par value common stock and

20、 100 shares of $50 par value preferred stock for a lump sum of $13,500. The common stock has a market value of $20 per share, and the value of the preferred stock is unknown. LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalIncremental MethodLO 3 Explain the accoun

21、ting procedures for issuing shares of stock.Corporate CapitalCash13,500Preferred stock (100 x $50) 5,000Journal entry (Incremental):Additional paid-in capital-preferred2,500Common stock (300 x $10) 3,000Additional paid-in capital-common3,000BE15-4: (Variation) Ravonette Corporation issued 300 shares

22、 of $10 par value common stock and 100 shares of $50 par value preferred stock for a lump sum of $13,500. The common stock has a market value of $20 per share, and the value of the preferred stock is unknown. Stock Issued in Noncash TransactionsThe general rule: Companies should record stock issued

23、for services or property other than cash at either the: fair value of the stock issued or fair value of the noncash consideration received, whichever is more clearly determinable.LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalLO 3 Explain the accounting procedure

24、s for issuing shares of stock.Corporate CapitalLand80,000Common stock (24,000 x $2) 48,000April 1: Issued 24,000 shares of common stock for land. The asking price of the land was $90,000; the fair market value of the land was $80,000.Additional paid-in capital32,000E15-2: Kathy Crystal Corporation w

25、as organized on January 1, 2010. It is authorized to issue 500,000 shares of no par common stock with a stated value of $2 per share. Prepare the journal entry to record the following.LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalOrganization expense50,000Common

26、 stock (10,000 x $2) 20,000Aug. 1: Issued 10,000 shares of common stock to attorneys in payment of their bill of $50,000 for services rendered in helping the company organize.Additional paid-in capital30,000E15-2: Kathy Crystal Corporation was organized on January 1, 2010. It is authorized to issue

27、500,000 shares of no par common stock with a stated value of $2 per share. Prepare the journal entry to record the following.Costs of Issuing StockDirect costs incurred to sell stock, such as underwriting costs, accounting and legal fees, printing costs, andtaxes, should be reported as a reduction o

28、f the amounts paid in (additional paid-in capital).LO 3 Explain the accounting procedures for issuing shares of stock.Corporate CapitalReacquisition of SharesLO 4 Describe the accounting for treasury stock.Corporations purchase their outstanding stock:To provide tax-efficient distributions of excess

29、 cash to shareholders.To increase earnings per share and return on equity.To provide stock for employee stock compensation contracts or to meet potential merger needs.To thwart takeover attempts or to reduce the number of stockholders.To make a market in the stock.Corporate CapitalPurchase of Treasu

30、ry StockTwo acceptable methods: Cost method (more widely used). Par or Stated value method. Treasury stock, reduces stockholders equity.Corporate CapitalLO 4 Describe the accounting for treasury stock.Corporate CapitalIllustration: Pacific Company issued 100,000 shares of $1 par value common stock a

31、t a price of $10 per share. In addition, it has retained earnings of $300,000. LO 4 Describe the accounting for treasury stock.Illustration 15-4Corporate CapitalIllustration: Pacific Company issued 100,000 shares of $1 par value common stock at a price of $10 per share. In addition, it has retained

32、earnings of $300,000. On January 20, 2010, Pacific acquires 10,000 shares of its stock at $11 per share.LO 4 Describe the accounting for treasury stock.Treasury stock 110,000Cash 110,000Corporate CapitalIllustration: Stockholders equity section for Pacific after purchase of the treasury stock.LO 4 D

33、escribe the accounting for treasury stock.Illustration 15-5Sale of Treasury StockAbove Cost Below CostBoth increase total assets and stockholders equity. Corporate CapitalLO 4 Describe the accounting for treasury stock.Corporate CapitalCash 15,000Treasury stock11,000Paid-in capital from treasury sto

34、ck4,000Illustration: Pacific acquired 10,000 shares of its treasury stock at $11 per share. It now sells 1,000 shares at $15 per share on March 10. Pacific records the entry as follows.LO 4 Describe the accounting for treasury stock.Corporate CapitalCash 8,000Paid-in capital from treasury stock 3,00

35、0Treasury stock11,000Illustration: If Pacific sells an additional 1,000 shares of treasury stock on March 21 at $8 per share, it records the sale as follows.LO 4 Describe the accounting for treasury stock.Corporate CapitalCash 8,000Paid-in capital from treasury stock 1,000Retained earnings2,000Treas

36、ury stock11,000Illustration: Assume that Pacific sells an additional 1,000 shares at $8 per share on April 10.LO 4 Describe the accounting for treasury stock.Illustration 15-6Retiring Treasury StockThis decision results in cancellation of the treasury stock and a reduction in the number of shares of

37、 issued stock.Corporate CapitalLO 4 Describe the accounting for treasury stock.Features often associated with preferred stock.Preference as to dividends.Preference as to assets in liquidation.Convertible into common stock.Callable at the option of the corporation.Nonvoting.LO 5 Explain the accountin

38、g for and reporting of preferred stock.Preferred StockCumulativeParticipatingConvertibleCallableRedeemableLO 5 Explain the accounting for and reporting of preferred stock.Preferred StockFeatures of Preferred StockA corporation may attach whatever preferences or restrictions, as long as it does not v

39、iolate its state incorporation law.Accounting for preferred stock at issuance is similar to that for common stock.Cash 120,000Preferred stock 100,000Paid-in capital in excess of par20,000Illustration: Bishop Co. issues 10,000 shares of $10 par value preferred stock for $12 cash per share. Bishop rec

40、ords the issuance as follows:LO 5 Explain the accounting for and reporting of preferred stock.Preferred StockLO 6 Describe the policies used in distributing dividends.Dividend PolicyDividend distributions generally are based on accumulated profits (retained earnings).Few companies pay dividends in a

41、mounts equal to their legally available retained earnings. Why?Maintain agreements with creditors.Meet state incorporation requirements.To finance growth or expansion.To smooth out dividend payments.To build up a cushion against possible losses.Cash dividends.Property dividends.LO 7 Identify the var

42、ious forms of dividend distributions.Types of DividendsDividends require information concerning three dates:Date of declarationDate of recordDate of paymentLiquidating dividends.Stock dividends.Cash DividendsBoard of directors vote on the declaration of cash dividends.A declared cash dividend is a l

43、iability.Companies do not declare or pay cash dividends on treasury stock.LO 7 Identify the various forms of dividend distributions.Types of DividendsIllustration: What would be the journal entries made by a corporation that declared a $50,000 cash dividend on March 10, payable on April 6 to shareho

44、lders of record on March 25?March 10 (Declaration Date)Retained earnings50,000Dividends payable50,000March 25 (Date of Record) April 6 (Payment Date)Dividends payable50,000Cash50,000DebitCreditLO 7 Identify the various forms of dividend distributions.Cash DividendNo entryProperty DividendsDividends

45、payable in assets other than cash.Restate at fair value the property it will distribute, recognizing any gain or loss.LO 7 Identify the various forms of dividend distributions.Types of DividendsIllustration: A dividend is declared Jan. 5th and paid Jan. 25th, in bonds held as an investment; the bond

46、s have a book value of $100,000 and a fair market value of $135,000.Date of DeclarationInvestment in bonds35,000Gain on investment35,000andDate of IssuanceProperty dividend payable135,000Investment in bonds135,000DebitCreditRetained earnings135,000Property dividend payable135,000LO 7 Identify the va

47、rious forms of dividend distributions.Property DividendLiquidating DividendsAny dividend not based on earnings reduces corporate paid-in capital.LO 7 Identify the various forms of dividend distributions.Types of DividendsJune 1 (Payment Date)April 20 (Declaration Date)Retained earnings375,000Additio

48、nal paid-in capital125,000DebitCreditDividends payable500,000Dividends payable 500,000Cash500,000BE15-12: Graves Mining Company declared, on April 20, a dividend of $500,000 payable on June 1. Of this amount, $125,000 is a return of capital. Prepare the April 20 and June 1 entries for Graves.LO 7 Id

49、entify the various forms of dividend distributions.Liquidating DividendStock DividendsIssuance of own stock to stockholders on a pro rata basis, without receiving any consideration.When stock dividend is less than 2025 percent of the common shares outstanding, company transfers fair market value fro

50、m retained earnings (small stock dividend).LO 8 Explain the accounting for small and large stock dividends, and for stock splits.Types of Dividends10% stock dividend is declaredRetained earnings20,000Common stock dividend distributable500DebitCreditAdditional paid-in capital19,500Stock issuedCommon

51、stock div. distributable 500Common stock500Illustration: HH Inc. has 5,000 shares issued and outstanding. The per share par value is $1, book value $32 and market value is $40.Stock DividendLO 8 Explain the accounting for small and large stock dividends, and for stock splits.Stock SplitTo reduce the

52、 market value of shares.No entry recorded for a stock split.Decrease par value and increased number of shares.Types of DividendsLO 8 Explain the accounting for small and large stock dividends, and for stock splits.2 for 1 Stock SplitNo Entry - Disclosure that par is now $.50 and shares outstanding a

53、re 10,000.Stock DividendIllustration: HH Inc. has 5,000 shares issued and outstanding. The per share par value is $1, book value $32 and market value is $40.LO 8 Explain the accounting for small and large stock dividends, and for stock splits.Stock Split and Stock Dividend DifferentiatedIf the stock

54、 dividend is large, it has the same effect on market price as a stock split.A stock dividend of more than 2025 percent of the number of shares previously outstanding is called a large stock dividend.With a large stock dividend, transfer from retained earnings to capital stock the par value of the st

55、ock issued.Types of DividendsLO 8 Explain the accounting for small and large stock dividends, and for stock splits.Illustration: HH Inc. has 5,000 shares issued and outstanding. The per share par value is $1, book value $32 and market value is $40.50% stock dividend is declaredRetained earnings2,500

56、Common stock dividend distributable2,500DebitCreditStock issuedCommon stock dividend distributable 2,500Common stock2,500Stock DividendLO 8 Explain the accounting for small and large stock dividends, and for stock splits.LO 9 Indicate how to present and analyze stockholders equity.Presentation and A

57、nalysis of Stockholders EquityPresentationBalance SheetIllustration 15-13LO 9 Indicate how to present and analyze stockholders equity.Presentation and Analysis of Stockholders EquityPresentation Statement of Stockholders EquityIllustration 15-14Ratio shows how many dollars of net income the company

58、earned for each dollar invested by the owners.AnalysisNet income Preferred dividendsAverage common stockholders equity Rate of Return on Common Stock Equity =Presentation and Analysis of Stockholders EquityLO 9 Indicate how to present and analyze stockholders equity.Presentation and Analysis of Stoc

59、kholders EquityLO 9 Indicate how to present and analyze stockholders equity.Illustration: Gerbers Inc. had net income of $360,000, declared and paid preferred dividends of $54,000, and average common stockholders equity of $2,550,000Illustration 15-15Solutions on notes pageIt is important to some in

60、vestors that the payout be sufficiently high to provide a good yield on the stock.AnalysisCash dividendsPayout Ratio =Presentation and Analysis of Stockholders EquityLO 9 Indicate how to present and analyze stockholders equity.Net income Preferred dividendsPresentation and Analysis of Stockholders E