Reporting and Interpreting Owners Equity

1
Chapter 11

• Reporting and Interpreting Owners Equity

2
Understanding The Business
3
Understanding The Business
Because a corporation is a separatelegal entity,
it can . . .
4
Ownership of a Corporation
5
Ownership of a Corporation
6
Authorized, Issued, and Outstanding Capital Stock
The maximum number of shares of capital stock
that can be sold to the public.
7
Authorized, Issued, and Outstanding Capital Stock
Authorized Shares
Issued shares are authorized shares of stock that
have been sold.
Unissued shares are authorized shares of stock
that never have been sold.
8
Authorized, Issued, and Outstanding Capital Stock
Authorized Shares
Outstanding Shares
Unissued Shares
Treasury Shares
9
Outback Steakhouse
10
(No Transcript)
11
Earnings Per share (EPS)
Earnings per share is probably the single most
widely watched financial ratio.
12
Types of Capital Stock
13
Common Stock
Basic voting stock
Ranks after preferred stock
Dividend set by board of directors
14
Par Value Stock
Par Value
Legal capital is the amount of capital, required
by the state, that must remain invested in the
business.
15
Par Value Stock
?
Par Value
Market Value
16
No-par Value Stock
17
Accounting for Capital Stock
Two primary sources of stockholders equity
18
Sale and Issuance of Capital Stock
Initial public offering (IPO)
Seasoned new issue
The first time a corporation sells stock to the
public.
Subsequent sales of new stock to the public.
19
Capital Stock Sold for Noncash Assets and/or
Services
Issues stock
Provides accounting services
Accountant
Record assets or services received at the market
value of the stock at the date of the
transaction. If the market value of the stock
cannot be determined, then the market value of
the assets or services received should be used.
20
Stock Options
Management compensation package includes salary
and stock options.
Stock options allow management to purchase stock
from the corporation at a fraction of the stocks
value in the secondary market.
Management
21
Treasury Stock
When stock is reacquired, the corporation records
the treasury stock at cost.
22
Accounting for Cash Dividends
23
Dividend Dates

• Date of Record
• Stockholders holding shares on this date will
  receive the dividend. (No entry)

X
24
Dividend Dates

• Date of Payment
• Record the dividend payment to stockholders.

25
Dividend Yield Ratio
Note Outback paid no dividends.
This ratio is often used to compare the
dividend-paying performance of different
investment alternatives.
26
Dividend Yield Ratio
This ratio is often used to compare the
dividend-paying performance of different
investment alternatives.
27
Accounting for Stock Dividends
Distribution of additional sharesof stock to
stockholders.
28
Stock Dividends
Small
Large
Stock dividend lt 25
Stock dividend gt 25
29
(No Transcript)
30
Stock Splits
Assume that a corporation had 5,000shares of 1
par value common stockoutstanding before a
2for1 stock split.
31
Stock Splits
Assume that a corporation had 5,000shares of 1
par value common stockoutstanding before a
2for1 stock split.
Increase
Decrease
No Change
32
Preferred Stock
33
Dividends on Preferred Stock

• Current Dividend Preference The current
  preferred dividends must be paid before paying
  any dividends to common stock.
• Cumulative Dividend Preference Any unpaid
  dividends from previous years (dividends in
  arrears) must be paid before common dividends are
  paid.

34
Dividends on Preferred Stock
If the preferred stock is noncumulative, any
dividends not declared in previous years are lost
permanently.
35
Accounting and Reporting for Three Types of
Businesses