CHAPTER 15 ee ‘ Flymay/Shutterstock Equity LEARNING OBJECTIVES ater studying this chapter, you should be able to: pescribe the corporate form and the issuance of 3. Explain the accounting and reporting issues related shares. to dividends. 2, Explain the accounting and reporting for treasury 4. Indicate how to present and analyze equity. shares. hore PREVIEW OF CHAPTER 15 As the following opening story indicates, the growth of bal equity capital markets indicates that investors around the world need useful informa- Cer {an In this chapter, we explain the accounting issues related to the equity of a corporation, Cees emer toy ‘The content and organization of the chapter are as follows. ra pt pareve T oe EQUITY Corporate Capital Reacquisition of Dividend Policy Presentation and | + Corporate form Shares + Financialcondition and | | Analysis: "Conponentsatequity || Purchase of weasury shares = Prsenatonoeauy | | + fsvance of shares « Sale of treasury shares + Analysis of equity | 7 Preference shares + Retiring treasury shares | eee splits tsa Global Market Seine in prior chapters, we are moving toward one set of glob: [tits and one common language” for financial information. This change will probably {82 greater consolidation of our capital markets. To understand how quickly the global al world is changing, let's examine a few trends occurring on securities exchanges snd the work 2297 the New York Stock IN: Worlds first transatlantic securities exchange. EE group, with more than 4,000 listed issuers representing over one-third of global nilarly, NASDAQ, the world’s largest electronic securities market, merged ket operator. This electronic exchange operates in as over 3,000 listed issuers, with a market value of ct L reporting change (NYSE) merged with Paris-based Euromet, creat NYSE Euroneat is the world’s largest ig 4 on six continents, and ha Scanned with CamScanner35-2 CHAPTER IS Equity Graph A approximately $8. tilion. Further exchange consolidation O€curred in 2013, hn, tinental Exchange merged with NYSE. "Another reason for the movement toward international financial reporting san be found in recent initial publi offerings (IPOs). For example otal global 10 ing 8° a8 regional percentages, were as foll0Ws. > 2,000 1,500 1,000] 00 | Source: Global IPO Activity rj 2015 2016 2017 2018 2019 Years [Number of IPOs —#- Proceeds (in USD billions) rom “Ernst & Young Global Limited”, Global IPO Trends Report (2039), page 4, retrieved trom ‘ronw.ey.com Publication/rwLUASsets/ey global ipo: trends-q3-2019/SFILEjey-global-ipo.trends-q3- 2019.pat Reprinted with permission of Ernst & Young. raph 8 | Regional Share by Number a Pos 250 | 2019 60% $200 | aos ae i 30% 26 Je 29% : Americas QEMEIA (Europe, Middle East, India, Africa ‘Source: From “Ernst & Young Global Limited", Global IPO Trends por (208), age, {retrieved from: wors.ey.com/Publication/vwLUASSets/ey- global: trends. q3 205) SFILE/ey-global-ipo-trends-q3-2019 pdf Reprinted with permission of Enst Young As indicated, global stock listings have been on the rise, and listings in Asia-Paificco tinue to be the biggest share of IPOs. + Proceeds in Asia were bolstered by the debut of China's STAR Market in 2019 Europe-Middle East was the second highest grossing sector, steadily increasing from 26 to 2018, recovering from the United Kingdom's decision to leave the European Union. Another in tor of globalization is provided by a review of the world’ largest compe nies, in terms of revenues and profits as shown in the following table. nk company {nub ions 1 Waiman) 4405 2 ‘Sinopec Group (cin) nis 3 Royalbutch shel WDL/GBR) soesse {China tational Petroleum (cH) senaTe 5 Stueari (crm) serose & Sandi arame SAU) 355908 7 apcen 5on738 8 Eontebil usa) s0a12 5 Votkrwagen (020) res 10 Toyota Pn) pee? eure om vers Wa age Compa 287 Ge Foon op ilo ‘The richest companies in the world by revenue are Walmart (USA), petroleum and che poration Sinopec (CHIN), and Royal Dutch Shell (NDL/GBR).If these companies £208 sales, why do stock investors prefer to pour money into tech companies and startups! PST unlike established companies—tech upstarts have a much greater potential for grow? with seven different countries represented in the top 10 of the Fortune Globill 500 global market, and investors should take care not to avoid these global investment opPO™ ets a ‘Sources: Emst and Young, Global 1PO Trends Report (Fourth Quarter, 2019); and L. Vent ‘Companies 2019,” Global Finance (August 29, 2019), ane Scanned with CamScannereview and Practice qnwineReview and Practice section atthe end of the chapter for a targeted summary ice problem with solution. Multiple-choice questions with annotated solutions, egwell as anal execs and practice problem with solutions, are ls valiable onfine Corporate Capital 15-3 corporate Capital _— LEARNING OBJECTIVE 1 peseribe the corporate form and the issuance of shares. See ee EEE ofthe three primary forms of business organization—the proprietorship, the partner sip andthe corporation—the corporate form dominates. The corporation is by'far the leader ietems of the aggregate amount of resources controlled, goods and services produced, and iremployed. Although the corporate form has a number of advantages (as well as disad Tintges) over the other two forms, its principal benefit is its facility for attracting and accu- tulating large amounts of capital. Corporate Form ‘The special characteristics of the corporate form that affect accounting include: 1. Influence of corporate la 2. Use of the share system, 3, Development of a variety of owners interests. Corporate Law Anyone who wishes to establish a corporation must generally submit articles of incor- Peration to the appropriate governmental agency for the country in which incorporation is, desired, After fulfilling requirements, the governmental agency issues a corporation charter, thereby recognizing the company as a legal entity. Regardless of the number of countries: in which a corporation has operating divisions, it is incorporated in only one country. It is ‘othe company’s advantage to incorporate where laws favor the corporate form of business ‘zaization, Many governments have their own business incorporation acts. The accounting for equity fllows the provisions of these acts. in many cases, the laws are complex and vary both in their Fovsions and in their definitions of certain terms. Some laws fail to define technical terms. ‘Saresult, terms often have one meaning in one country and another meaning in a different Toualassets -0- Decrease 2 Number of shares outstanding Increase eres “Par or tated valve of shares, i ——C“ NN Presentation and Analysis of Equity a ee LEARNING OBJECTIVE 4 Indicate how to present and analyze equity. i eae Presentation of Equity Statement of Financial Position Mlustration 1: sant pol rt equity section from the statement ff?" Frost should disclose: ty items we discussed in this chapte™” sag the pertinent rights a ities ou ; and 5 ecurites ost Forexample, companies must dia ght and privileges of the varioussec - the following: dividend and liquidation Pr prehensive income.” Among these items are “EON op ‘uy Envestens” covered in Chapa a ®°2URtng), “Unrealized holding gains and loses ‘Shipment (covered in Chapa eae" 7s and “Unreal ri oa ‘zed holding gains or losses on proper: Pa ‘Woften refered toas revaluation seplos Scanned with CamScannerPresentation and Analysis of Equity 15-23 0 (gGGAA OTT ROTOR Baa gg 10 STONIOTRIE TO POTIIEM| / euity Comprehensive Equity | December 31,2022 Presentation gpl prterence €100 par value, 96 comulaive, | Sesirsauortd 30200 shresiaued andousaning €3,001000 jae edna. roar sted vlve ED per share, 0,00 Pate, #00000 shares sve as oat horedvdenddtbuble oon | ae prium-pefeence seererium=orinay ss0,000 Seed eines 4360.00 i pares (2.000 ordinary share) 1490000) Teme dette comprenensve oss (360.000) veka Ez00000 putcpation rights call prices and dates, conversion or exercise prices and pertinent dates, sink- ingfund requirements, unusual voting rights, and significant terms of contracts to issue addi ‘nal shares. Liquidation preferences should be disclosed in the equity section of the statement otfnancal positon, rather than in the notes to the financial statements, to emphasize the possi- Ueefect ofthis restriction on future cash flows. Disclosure of Restrictions on Retained cnings Many companies restrict retained earnings or dividends, without any formal journal enti Sich estitions are best disclosed by note. Parenthietical notations are sometimes used, but rsitctions imposed by bond indentures and loan agreements commonly require an extended alination. Notes provide a medium for more complete explanations and free the financial Stgments from abbreviated notations. The note disclosure should reveal the source of the ‘stction, pertinent provisions, and the amount of retained earnings subject to restriction or the amount not restricted. Restrictions may be based on the retention of a certain retained earnings balance, the ably to maintain certain working capital requirements, additional borrowing, and other ‘etsiderations. The example from the annual report of Samsung (KOR) in Illustration 1517 shows a note disclosing potential restrictions on retained earnings and dividends. Rees Disclosure of Restrictions on Retained Earnings and Dividends Samsung 21, RETAINED EARNINGS Retained earnings as of December 31 consist ofthe following: (nitions of Korean won) Current Year Prior Year opiate Lepireerve fed supus reser! Ww 450789 W 450,709 creionary reserve: Reserve forimprovement of financial structure 204815 204,815 Reserve for business rationalization 9,512,101 8,512,101 mane for overseas market development slot S190 Ve for overseas investment losses 5 ; | Reevetocrescarh ang human resource development 25,936,488 22936458, | Rssevetorexpotiosses 157,749 167.749 a for loss on disposal of treasury stock 3,100,000 2,550,000 ve for capital expenditure 826.439 hy 43,714,083 te "PPropriated 7,351,091. eal wss19551 W5n,065,176 Ne acon the epic often auesthe Company ‘0 sProtAeSaleal seve a amount eso rennute! Ot oman casera celeron hese equa 0% is Sed pastry, The ese ca ore payment a ash ddends but maybe anstcredt0 capita stock hough 2eslution ofthe Board of totes neste dea, Hany winenersicton of eshte Scanned with CamScanner315-24 CHAPTER 15 Equity Presentation of Statement of Changes in Equity Companies are also required to present a statement of changes in equity. The changes in equity includes the following. 1. Total comprehensive income for the period, showing separately the tota utable to owners of the parent and to non-controlling interests 2. For each component of equity, restatement, 3. Foreach component of equity, a reconciliation between the carrying amount a ning and the end of the period, separately disclosing changes resulting from: a Profit or loss. b. Each item of other comprehensive income, «©. Transactions with owners in their capacity as owners, showing separately con tions by and distributions to owners and changes in ownership interests insubsden, that do not result ina loss of control. A statement of changes in equity for BASF Group (DEU)is presented in Iustration 151. In addition, BASF is required to present, either in the statement of chan; in the notes, the amount of dividends recognized as distributions to owners d tema Amount ay, the effects of retrospective application of rey pe the ep. 1B In equity, 1. Return on ordinary share equity 2. Payout ratio, 3. Book value per share, lustrate the following three ratios below. Scanned with CamScanner luring the peat and the related amount per share. [5] Statement of Changes in Equity BASF Group | Statement of Equity | {in millions of euros) | Equity | ateibutable Number of other = shares" Subsebed Capital Retained comprehensive sharehaldersNovcontling outstanding capital reserves earings Income OTBASF interests EY ‘As of December 31, nar — | 2017 siea7ess¢ 1176 3,7 aaea (5.282) 23837 9-8 15 Danton ec 7 es 2 (9) 28) a 8) ‘As of January 1, 2018 nite 307 Bapar Ban Bas a OM Effects of acquisitions aa an achieved in stages - - 7 : 7 hotest = = 2 (2.847) - (247) ar) income after tres - = a 7 Changes to income sl aoe ™m | and expense recognized directly inequity S . E = Changes in scope of (00) (oa) 2 ‘consolidation and other changes a a ® w of ‘As of December 31, Sas see iat ais 699 5939) joss Se Analysis x Analysts use equity ratios to eval " solvers Lic valuate a compat tability and long-term discuss and il peed e brolitablity and lone:Presentation and Analysis of Equity 15-25 return on Ordinary Share Equity return on ordinary share equity (or retu; Jeordinary shareholders’ viewpoint. This ratio s fonpany cared for each dollar i spestrs judge the worthiness of im on equity) measures profitability from hows how many dollars of net income the nvested by the owners, Return on equity (ROE) also helps ‘a share when the overall market is not doing well, Return on equity equals net income less preference dividends, divided by average ordinary shareholders equity. For example, assume that Gerber’s Ine. had net income of $360,000, that idelared and paid preference dividends of $54,000, and average ordinary shareholders equity ¢f52550,000. [ustration 15.19 shows how to compute Gerber’s ratio, onan et ay ~ meee Bends Average Ordinary Shareholders? Equity Computation of Return on __ $360,000 ~ $54,000 Ordinary Share Equity = "$2,550,000 12% Asshown in Illustration 15.19, when preference shares are present, income available to ordi- tary shareholders equals net income less preference dividends. ‘Acompany can improve its return on ordinary share equity through the prudent use of debt «rpreference share financing, Trading on thse v«:ity describes the practice of using borrowed ‘money or issuing preference shares in hopes of obtaining a higher rate of return on the money ‘sed, Ordinary shareholders win if return on the assets is higher than the cost of financing these sels. When this happens, the return on ordinary share equity will exceed the return on total sels. In short, the company is “trading on the equity at a gain.” In this situation, the money tbisined from bondholders or preference shareholders earns enough to pay the interest or pref: «rence dividends and leaves a profit forthe ordinary’shareholders. On the other hand, ifthe cost ofthe financing is higher than the rate earned on the assets, the company is trading on equity at alossand shareholders lose. Payout Ratio Anather ratio of interest to investors, the payout ratio, is the ratio of cash dividends to net income. If preference shares are outstanding, this ratio equals cash dividends paid to ordi "ary shareholders, divided by net income available to ordinary shareholders. For example, ‘sume that Troy SA has cash dividends of €100,000 and net income of €500,000, and no Meference shares outstanding, Illustration 15.20 shows the payout ratio computation, noid Payout Ratio = Fetincome — Preference Dividends Computation of Payout Ratio Recently, the payout ratio has plummeted. In 2000, more than half of earnings were con- "red to dividends, In 2018, just 43 percent of the earnings of global public companies was “nbuted via dividends.” ‘dew Backman, “How Well Do You Know... Dividends?" Wall Steet Journal (September 10,2007) p. RS. SBeserayout datgarpegester nce’ €200damodar/New. Home Poxe/datatmt and M Biel "ied Frenzy tars cool uns Wl et Journal NoveTnbst 22018). Scanned with CamScanner35-26 CHAPTER 15 Equity ILLUSTRATION 15.21 ‘Computation of Book Value per Share Book Value per Share ‘Another basis for evaluating net worth is found in the book value or equit Book value per share s the amount each share would receveithe company were gig on the basis of amounts reported on the statement of financial position, toyays! figure loses machof its relevance the valuations on the statement of ian estan approximate fir value ofthe asses. Book value per share equals ordinary shareolde ea dividedbyoutstandingordinary shares. AssumethatChen Ltdsordiarysharehaden HKSi,000,000and thatitas 10,000 sharesof ordinary haresoutstanding. Mlustrationies shows its book value per share computation, value pers ‘Book Value _ OF er Share | ___HKS1,000,000, | = 100,000 | = HKS10per share | Dee aU Laci: Dividend Preferences SUT Dividend Distribution, Non-Cumulative and Dividend Distribution, Cumulative and Non- Participating Preference ‘Shares, with Dividends in ‘Arrears —— LEARNING OBJECTIVE *5 Discuss the different types of preference share dividends and their effect on book value per share, Mlustrations 154.1 to 154.4 indicate the effects of various dividend preferences on idend distributions to ordinary and preference shareholders. Assume that in 2022, Bast? Company is to distribute €50,000 as cash dividends, its outstanding ordinary shares ®? Par value of €400,000, and its 6 percent preference shares have a par value of €100,000. NS" ‘would distribute dividends to each class, employing the assumptions given, a fllo¥* 1. Ifthe preference shares are non-cumulative and non-participating: ee ee Preference Ordinary HL | 62h €100,000 sae cae | The remainder to ordinary —_~ an Tova any 2. Ifthe preference shares are cumulative and non-participating, and Mason Com#=” ‘ot pay dividends on the preference shares in the preceding two years — ww Peterence — ordinay | Dividends in arrears, 6 of €100,00 for years 12,000 “eo | Current year's dividend, 6% of €100000 6000 o Therenandrto ordinary om enna BE | Totals E00 se Scanned with CamScanner‘Appendix 1SA: Dividend Preferences and Book Value perShare 18-27 3 tte preference shares re non cumulative andar fully par ipating:" = — Preference ordina Total canentyear' dividend, 6% © 6000 s Farcipating dividend of 4% . Sune €30,000 4000 16,000 20,000 Twas ‘Si0.000 $0,000 Thepatipating dividend was determined as follows = — Coretyear's dividend Preference, 56 0f €100,000 =€ 6,000 dinar, Sof €400,000 = 24,000 €30,000 Anount aaiable or participation (50,000 -€30000) €20,000 faralu of shares that ae to participate (€100.00 + €00,000) esto gop ‘ato patiipation(€20,000 €500,000) 6 Patipating dividend Preleence, 4% of €100,000 € 4000 Ordinary, 40 €400,000 18,000 SR 4. Ifthe preference shares are cumul lative and are fully participating, id not pay dividends on the preference shares in the preceding tw and Mason Company fo years: Prelerence Ordinary Didends in arrears, 684 of €100,000 for 2years ‘€12,000 Curent year's dividend, 6% 6000 —_€24000 Paticipating dividend, 1.6% (€8,000 + €500,000) 1,600 6.400 Totals e360 & Dividend Distribution, Non-Cumulative and Fully Participating Preference Shares TSE Dividend Distribution, Cumulative and Fully Participating Preference Shares, with Dividends in Arrears — Book Value per Share Book value per share in its simplest form is computed as net assets divided by outstanding “€S at the end of the year. The computation of book value per share becomes more com- {heated if a company has preference shares in its capital structure. Forexample if preference Mdends are in arrears, if the preference shares are participating, or if preference shares in e¢emption or liquidating value higher than it carrying amount, the company must dlosate retained earnings between the preference and ordinary shareholders in computing os {ion 15A.5 assumes that no preference dividend: * example, the situation in Mustration 15A.S assumes that no preference dividends “WS exist, except that the § percent preference shares are cumulative, participating shares “hen preter More mended murah of hares. this ease the rate termine the amount of participation, "Multiply by the par value of each clas of shates 0 ee Scanned with CamScanner15-28 CHAPTER 15 Equity nace ‘Computation of Book Value per Share—No Dividends in Arrears uC reey ‘Computation of Book Value per Share—with Dividends in Arrears, Participating Eauity Senay Peerence shares, 5% €200,000 Ordinary shares 420039 Share premium ordinary sso. Retain earnings ae 2000000 Totals : oot se shares oustanding “09 Book ave per share eon up to percent, and that dividends for three years before the current year are nara thy, 14 15A.6 shows how to compute the book value ofthe ordinary shares, assuming, action has yet been taken concerning dividends forthe current year. Equity Preference shares, 5% Ordinary shares Share premium—rdinary Retained earnings: Dividends in arrears (3 years at 5% a year) Current year requirement at 5% Participatingadditional 3% Remainder to ordinary Totals Shares outstanding Book value per share As indicated, retained earnings is allocated between preference and ordinary shareholdesia computing book value per share. In connection with the book value computation, the analyst must know how to handt the following items: the number of authorized and unissued shares, the number of teae shares on hand, any commitments with respect to the issuance of unissued shares or the suance of treasury shares, and the relative rights and privileges of the various types of st authorized. As an example, if the liquidating value of the preference shares is higher thai carrying amount, the liquidating amount should be used in the book value computation Review and Practice Key Terms Review book value pershare 1526 tala peeence shares 1510 Sash aivdends 1537 Sontivuted (pitin capil 155 ‘shoe rfrence shares 150 teatro’ 1842 comuttve preference shares Sividend in sears 1540 earned espial 15 sity 1S Teverged bayou (80). 1812 1510 liquidating dividends 15.17 lump-sum sales 15-7 residual interest 15-5 retained earnings 155 ho-parshares 15-6 return on ordinary share equity ordinary shares 15-4 sharedividends 15-19 Par (Stated) value method 15-12 share premium 15-6 Participating preference shares 18.10 sharesplit 15-21 Payout ratio 15.25 stated value 15-7 Dreemptive right 15-4 statement ofchangesinquty 87 Dreference shares 15-4, 15.9 tradingon the equity 15-25 Property dividends 1 Fedeemable preference shares 15-10 treasury shares | 15:12 Scanned with CamScannerReview and Practice 15-29 Learning Objectives Review | pesribe the corporate form and the issuance of shares. «the specific characteristics ofthe corporate form that affect, amingare the (1 influence of corporate law (2) se ofthe share and (3) development of a variety of ownership interest, In Einance of restrictive provisions, each ordinary share earres the Srv share proportionately in (1) profits and loses, 2) manage Meee right to vote for directors), (3) corporate assets upon liqui (4) any new issues of shares ofthe same class (called the non aio. and peenpie ih) pity is classified into two catepories: contributed capital sed eaned capital. Contributed capital (paid-in capital) describes veal amount paid in as share capital Put another way, iti the vpount that shareholders advance t0 the corporation for wse ia the fatness Contributed capital includes items such as the par value at oustanding shares and premiums less any dscotnts on fst SoceEamed capital isthe capital that develop ifthe business oper as pofiably: i eonsists of all undistributed income that remains insted inthe company. ‘Accounts are kept forthe following different types of shares terval shares: (8) Share Capital—Preference or Share Capital Oninary. (0) Share Premium—Preference and Share Premium— Odinay Noipar shares: Shate Capital—Ordinary or Share Capi ti-Ovdinay and Share Premium—Ordinary if stated value used Fer shares issued in combination with other securities lump-sum s)he two methods of allocation available ace (2) the proportional tethod and (b) the ineremental method. When issuing shares for sees or property other than cash, the company should record the ‘echange athe fir value of the property o services received unless ‘ht fr value eannot be reliably measured. Otherwise, use the fir ‘loot the shares issued Preference shares are a special clas of shares that possess cr tin preeencesr features not possessed bythe ordinary shares Th¢ fares that are mat often associated with preference share (sues (1 preference 35 to dividends, (2 preference a 1 asses 0 8 ‘en of liquidation, (3) convertible into ordinary shares. (4) callable 2th option ofthe corporation, and (5) nomwating, AUSSUANE, ‘conning for preference shares similar oat for ordinary See hen convertible preference shares are converted commary ebook value method. I debits Share Capital—Preference S078 ‘any related. Share Premium—Preference, and credits SPE Gpia“Ondnary and. Share Premium—-Ordinary (iF an exces 5, a 2 Explain the accounting and reporting for treasury shares, Be been een medi gneray dn cei a ismethod derives its name from the fact that company essay Shares account at the cost of the shares par ai na fee y debits the Treas ‘Shares acct £2x.0 he shares acquired and eredits Ht sy See en originally issued te. The pie secelved for he sates NTE OF op ii ot affect the entris to record the acai! sy shares. te 3. Explain the accounting and reporting issues related to dividends. “The incorporation laws normally provide information concerning the legal restrictions related to the payment of dividends. Corporations rarely pay dividends in an amount equal tthe legal limit. This is due. in part, tothe fac that companies use assets represented by undisrib- tuted earnings to Finance future operations of the business. Ifa com pany is considering declaring a dividend, it must ask two preliminary (questions, (1) Is the condition of the corporation such that the divi- ddend is legally permissible? (2) Is the condition of the corporation ‘such that a dividend is economically sound? Dividends are of the following types: (1) eash dividends, (2) property dividends, (3) liquidating dividends (dividends based on ‘her than retained earnings) and (4) share dividends (the issuance by a corporation ofits own shares to its shareholders on a pro rata hasis but without receiving consideration), ‘When declaring share dividend, a company debits Retained Ean- ings atthe par value of the shares it distributes. The entry includes a credit to Ordinary Share Dividend Distributable at par value times the fhumber of shares. A share dividend isa capitalization of retained earn ings that reduces retained earings. The par value per shar equity remain unchanged wih a share dividend, and all shar fetain their same proportionate share of ownership. A share split (or Teverse share split) result in an increase or decrease in the number of ‘hares outstanding, with a crresponding decrease or increase in the par sratated value per share, Noaccounting entry is required fora sharespit. eee ee ‘4 Indicate how to present and analyze equity. — EE eee “The equity section of a statement of financial position includes share capital, share premium, and retained earings. A company may’ aso fave additional tems such as treasury shares, accumulated other com prehensive Income (0s), and non: conteling interest, Companies are Fequied to present a statement of changes in equity, Ratis that use feqity amounts are return on ordinary share equity, payout eatio, and book value per share. —— eee #5 Discuss the different types of preference share divi dends and their effect on book value per share. Bite eres eee ses of preference shares affect the dividends ‘The dividend prefer paid to shareholders. Preference shares can be (1) cumulative or Pon-cumulative, and (2) fully participating, partially participating, or ron-participating If preference dividends are in arrears, if the prefer gave shares are participating or if preference shares have a redemp fiom or liquidation value higher than its earcying amount, allocate ned earnings between preference and ordinary shareholders in ‘computing book value per share, Enhanced Review and Practice jah solutions, review ll key ters Go online for nltiplechoice questions w ‘exercises with solutions, and a full glossary of Scanned with CamScanner