PDF 14 Pengantar Akun

Accounting Principles
Thirteenth Edition
Weygandt ● Kimmel ● Kieso
Chapter 14
Corporations: Dividends, Retained
Earnings, and Income Reporting
This slide deck contains animations. Please disable animations if they cause issues with your device.
Chapter Outline
Learning Objectives
LO 1 Explain how to account for cash dividends, stock
dividends, and stock splits.
LO 2 Discuss how stockholders’ equity is reported and
analyzed.
LO 3 Describe the form and content of corporation income
statements.
Copyright ©2018 John Wiley & Sons, Inc. 2

Accounting for Dividends and Stock Splits
Distribution of cash or stock to stockholders on a pro rata
(proportional to ownership) basis.
Types of Dividends:
1. Cash
2. Property
3. Stock
4. Scrip (promissory note)

Cash Dividends (1 of 3)
For a corporation to pay a cash dividend, it must have:
1. Retained earnings - Payment of cash dividends from
retained earnings is legal in all states
2. Adequate cash
3. A declaration of dividends by Board of Directors

Three dates are important:

Illustration: On December 1, the directors of Media General declare a 50
cents per share cash dividend on 100,000 shares of $10 par value
common stock. The dividend is payable on January 20 to shareholders of
record on December 22.
Dec. 1 Cash Dividends 50,000
Dividends Payable 50,000
(To record declaration of cash
dividend)
Dec. 22 No entry
Jan. 20 Dividends Payable 50,000

Cash 50,000
(To record payment of cash
dividend)
Dividend Preferences (1 of 3)
• Right to receive dividends before common stockholders
• Per share dividend amount is stated as a percentage of
preferred stock’s par value or as a specified amount
• Cumulative Dividend Preferred stockholders must be
paid both current-year dividends and any unpaid
prior-year dividends before common stockholders
receive dividends

Cumulative Dividend
Illustration: Scientific Leasing has 5,000 shares of 7%, $100 par value,
cumulative preferred stock outstanding. Each $100 share pays a $7
dividend (.07 × $100). The annual dividend is $35,000 (5,000 × $7 per
share). If dividends are two years in arrears, preferred stockholders are
entitled to receive the following dividends.
Dividends in arrears ($35,000 × 2) $ 70,000

Current-year dividends 35,000
Total preferred dividends $105,000

Allocating Cash Dividends Between Preferred and
Common Stock
Holders of cumulative preferred stock must be paid any
unpaid prior-year dividends and their current year’s
dividend before common stockholders receive dividends.

Allocating Cash Dividends (1 of 3)
Illustration: On December 31, 2020, IBR Inc. has 1,000 shares of
8%, $100 par value cumulative preferred stock. It also has 50,000
shares of $10 par value common stock outstanding. At December
31, 2020, the directors declare a $6,000 cash dividend. Calculate
the annual preferred dividend.
$100 par × 8% × 1,000 shares = $8,000
Prepare the entry to record the declaration of the dividend.
(To record $6 per share cash
dividend to preferred stockholders)
Illustration: At December 31, 2021, IBR declares a $50,000 cash
dividend. Show the allocation of dividends to each class of stock.
Total dividend $50,000

Allocated to preferred stock
Dividends in arrears, 2020 (1,000 × $2) $2,000
2021 dividend (1,000 × $8) 8,000 10,000
Remainder allocated to common stock $40,000

Illustration: At December 31, 2021, IBR declares a $50,000 cash
dividend. Prepare the entry to record the declaration of the
dividend.

(To record declaration of cash
dividends of $10,000 to preferred
stock and $40,000 to common stock)

Do It! 1a: Dividends on Preferred and
Common Stock (1 of 3)
MasterMind Corporation has 2,000 shares of 6%, $100 par value
preferred stock outstanding at December 31, 2020. At December
31, 2020, the company declared a $60,000 cash dividend.
Determine the dividend paid to preferred stockholders and
common stockholders under each of the following scenarios.
1. The preferred stock is noncumulative, and the company has
not missed any dividends in previous years.
Preferred stockholders are paid only this year’s dividend
Preferred stockholders = $12,000 (2,000 × .06 × $100)
Common stockholders = $48,000 ($60,000 − $12,000)

2. The preferred stock is noncumulative, and the company did
not pay a dividend in each of the two previous years.
Past unpaid dividends do not have to be paid
Preferred stockholders = $12,000 (2,000 × .06 × $100)

3. The preferred stock is cumulative, and the company did not
pay a dividend in each of the two previous years.
Dividends that have been missed (arrears) must be paid
Preferred stockholders = $36,000 (3 × 2,000 × .06 × $100)

Stock Dividends (1 of 4)
A pro rata (proportional to ownership) distribution of the
corporation’s own stock to stockholders.
Reasons why corporations issue stock dividends:
1. Satisfy stockholders’ dividend expectations without
spending cash
2. Increase marketability of corporation’s stock
3. Emphasize a portion of stockholders’ equity has been
permanently reinvested in business

• Small stock dividend (less than 20–25% of
corporation’s issued stock, recorded at fair market
value)
o Accounting based on assumption that a small stock
dividend will have little effect on market price of
outstanding shares
• Large stock dividend (greater than 20–25% of issued
stock, recorded at par value)

Entries for Stock Dividends (1 of 2)
Illustration: Medland Corporation declares a 10% stock dividend on its 50,000
shares of $10 par value common stock. The current fair market value of its stock
is $15 per share. Record the entry on the declaration date:
Stock Dividends 75,000
Common Stock Dividends Distributable 50,000
Paid-in Capital in Excess of Par—Common Stock 25,000
(To record declaration of 10% stock dividend)
Paid-in capital
Common stock $500,000
Common stock dividends distributable 50,000
In excess of par—common stock 25,000
Total paid-in capital $575,000

Entries for Stock Dividends (2 of 2)
Illustration: Medland Corporation declares a 10% stock dividend on its 50,000
shares of $10 par value common stock. The current fair market value of its stock
is $15 per share. Record the entry on the declaration date:
Stock Dividends 75,000
Paid-in Capital in Excess of Par—Common Stock 25,000
(To record declaration of 10% stock dividend)
Record the journal entry when Medland issues the dividend shares.

Common Stock 50,000
(To record issuance of 5,000 shares in a stock
dividend)

Effects of Stock Dividends
Before After
Dividend Change Dividend
Stockholders’ equity
Paid-in capital
Common stock, $10 par $500,000 $ 50,000 $550,000
Paid-in capital in excess of par— — . 25,000 25,000
Total paid-in capital 500,000 +75,000 575,000
Retained earnings 300,000 −75,000 225,000
Total stockholders’ equity $800,000 $ 0 $800,000
Outstanding shares 50,000 +5,000 55,000
Par value per share $10.00 $ 0 $10.00

Which of the following statements about small stock
dividends is true?
a. A debit to Retained Earnings should be made for the par
value of the shares issued.
b. A small stock dividend decreases total stockholders’ equity.
c. Market price per share should be assigned to the dividend
shares.
d. A small stock dividend ordinarily will have an effect on par
value per share of stock.

Which of the following statements about small stock
dividends is true?
a. A debit to Retained Earnings should be made for the par
value of the shares issued.
b. A small stock dividend decreases total stockholders’ equity.
c. Answer: Market price per share should be assigned to the
dividend shares.
d. A small stock dividend ordinarily will have an effect on par
value per share of stock.

Stock Splits (1 of 3)
• Issuance of additional shares to stockholders according
to their percentage ownership
• Reduction in par or stated value per share
• Increase in number of shares outstanding
• Reduces market value of shares
• No journal entry recorded, no affect on any balance in
stockholders’ equity

Effect of 4-for-1 stock split for stockholders

Effects for Medland Corporation, assuming that it splits its 50,000
shares of common stock on a 2-for-1 basis.
Before After
Stock Split Change Stock Split
Stockholders’ equity
Paid-in capital
Common stock, $10 par $500,000 $500,000
Paid-in capital in excess of par -0- . . -0- .
Total paid-in capital 500,000 $ 0 500,000

Retained earnings 300,000 0 300,000
Total stockholders’ equity $800,000 $ 0 $800,000
Outstanding shares 50,000 +50,000 100,000
Par value per share $10.00 −$5.00 $5.00

Do It! 1b: Stock Dividends and Splits (1 of 2)
Sing CD Company has had five years of record earnings. Due

to this success, the market price of its 500,000 shares of $2
par value common stock has tripled from $15 per share to
$45. During this period, paid-in capital remained the same at
$2,000,000. Retained earnings increased from $1,500,000 to
$10,000,000. President Joan Elbert is considering either a 10%
stock dividend or a 2-for-1 stock split. She asks you to show
the before-and-after effects of each option on retained
earnings, total stockholders’ equity, shares outstanding, and
par value per share.

Do It! 1b: Stock Dividends and Splits (2 of 2)
Sing CD Company has had five years of record earnings. Due to this
success, the market price of its 500,000 shares of $2 par value common
stock has tripled from $15 per share to $45. President Joan Elbert is
considering either a 10% stock dividend or a 2-for-1 stock split.
Original After After

Balances Dividend Split
Paid-in capital $2,000,000 $4,250,000 $2,000,000
Retained earnings 10,000,000 7,750,000 10,000,000
Total stockholders’ equity $12,000,000 $12,000,000 $12,000,000
Outstanding shares 500,000 550,000 1,000,000
Par value per share $2.00 $2.00 $1.00

Reporting Stockholders’ Equity
Retained earnings is net income that a company retains in the
business.
• Part of stockholders’ claim on total assets of corporation
• Debit balance is identified as a deficit

Retained Earnings Restrictions
Restrictions can result from:
1. Legal restrictions
2. Contractual restrictions
3. Voluntary restrictions

Retained Earnings (1 of 2)
Prior Period Adjustments
• Correction of an error in previously issued financial
statements
• Result from:
o mathematical mistakes
o mistakes in application of accounting principles
o oversight or misuse of facts
• Adjustment made to beginning balance of retained
earnings

Retained Earnings (2 of 2)
Journal entry
Retained Earnings 300,000
Accumulated Depreciation—Equipment 300,000
(To adjust for understatement of
depreciation in a prior period)
Retained Earnings Statement
Debits and Credits to Retained Earnings
Retained Earnings
1. Net loss 1. Net income
2. Prior period adjustment for 2. Prior period adjustment for
overstatement of net income understatement of net
income
3. Cash dividends and stock
dividends
4. Some disposals of treasury
stock

Comprehensive Stockholders’ Equity
Section

Analysis of Stockholders’ Equity (1 of 2)
Payout Ratio
• Measures percentage of earnings a company distributes in
form of cash dividends to common stockholders
To illustrate, Nike’s dividends were recently $821 million and
net income was $2,693 million.
$821 ÷ $2,693 = 30.5%

Analysis of Stockholders’ Equity (2 of 2)
Return on Common Stockholders’ Equity
• Indicates how many dollars of net income company earned for each
dollar invested by common stockholders
Walt Disney Company’s beginning and ending common stockholders’
equity were $31,820 and $30,753 million, respectively. Net income was
$4,687 million, no preferred stock.

Do It! 2: Analyzing Stockholders’ Equity (1 of 3)
On January 1, 2020, Siena Corporation purchased 2,000 shares of
treasury stock. Other information regarding Siena Corporation is
provided below.
2019 2020
Net income $110,000 $110,000
Dividends on preferred stock 10,000 10,000
Dividends on common stock 2,000 1,600
Common stockholders’ equity, beginning of year 500,000 400,000*
Common stockholders’ equity, ending of year 500,000 400,000
*Adjusted for purchase of treasury stock.
(a) Compute return on common stockholders’ equity for each year,

and (b) discuss its change from 2019 to 2020.
2019 2020
Net income $110,000 $110,000
(a) Compute return on common stockholders’ equity for each year.
2019 2020

(b) Discuss its change from 2019 to 2020.
Between 2019 and 2020, return on common stockholders’ equity
improved from 20% to 25%. While this would appear to be good
news for the company’s common stockholders, this increase
should be carefully evaluated. It is important to note that net
income did not change during this period. The increase in the ratio
was due to the purchase of treasury shares, which reduced the
denominator of the ratio. As the company repurchases its own
shares, it becomes more reliant on debt and thus increases its risk.

Income Statement Presentation (1 of 2)

Income Statement Presentation (2 of 2)
Companies record income tax expense and the related liability for
income taxes payable as part of the adjusting process.
Using the data for Leads Inc., in Illustration 14.18, the adjusting
entry for income tax expense at December 31, 2020, is as follows.:
Income Tax Expense 46,800

Income Taxes Payable 46,800
(To record income taxes for 2020)

Income Statement Analysis (1 of 2)
EPS and Preferred Dividends
• Indicates the net income earned by each share of
outstanding common stock
To illustrate, assume that Rally Inc. reports net income of
$211,000 on its 102,500 weighted-average common shares.
During the year, it also declares a $6,000 dividend on its
preferred stock. Therefore, the amount Rally has available for
common stock dividends is $205,000 ($211,000 − $6,000).
Earnings per share is calculated as follows.

Income Statement Analysis (2 of 2)
To illustrate, assume that Rally Inc. reports net income of $211,000
on its 102,500 weighted-average common shares. During the year,
it also declares a $6,000 dividend on its preferred stock. Therefore,
the amount Rally has available for common stock dividends is
$205,000 ($211,000 − $6,000). Earnings per share is calculated as
follows.

Do It! 3: EPS (1 of 3)
On January 1, 2020, Siena Corporation purchased 2,000 shares of treasury
stock. Other information regarding Siena Corporation is provided below.
2019 2020
Net income $110,000 $110,000
Weighted-average number of shares outstanding 10,000 8,000*
(a) Compute earnings per share for each year, and (b) discuss the change
from 2019 to 2020.
2019 2020
Net income $110,000 $110,000
Weighted-average number of shares outstanding 10,000 8,000*
(a) Compute earnings per share for each

year. 2019 2020

(b) Discuss the change from 2019 to 2020.
Between 2019 and 2020, earnings per share increased from $10 to
$12.50. While this would appear to be good news for the company’s
common stockholders, this increase should be carefully evaluated. It is
important to note that net income did not change during this period.
The increase was due to the purchase of treasury shares, which reduced
the denominator of the ratio. As the company repurchases its own
shares, it becomes more reliant on debt and thus increases its risk.

Appendix 14A: Stockholders’ Equity
Statement (1 of 2)
• Disclosure of changes in stockholders' equity necessary to make
financial statements informative for users.
• Statement shows changes in each stockholders’ equity account and in
total stockholders’ equity during the year.
• Stockholders’ equity statement prepared in columnar form.

Appendix 14A: Stockholders’ Equity
Statement (2 of 2)

Appendix 14B: Book Value per Share (1 of 5)
Represents the equity a common stockholder has in the net assets of the
corporation from owning one share of stock.
If Marlo Corporation has total stockholders’ equity of $1,500,000
(common stock $1,000,000 and retained earnings $500,000) and 50,000
shares of common stock outstanding, book value per share is calculated
as follows.

When the company has both preferred and common stock,
the computation of book value per share involves the
following steps.
1. Compute preferred stock equity. The sum of the call price
of preferred stock plus any cumulative dividends in arrears.
If the preferred stock does not have a call price, the par
value of the stock is used.
2. Determine the common stock equity. Subtract the
preferred stock equity from total stockholders’ equity.
3. Determine book value per share. Divide common stock
equity by shares of common stock outstanding.

Using the stockholders’ equity section of Graber Inc. shown in
Illustration 14.14, assume Graber’s preferred stock is callable at
$120 per share and is cumulative, and that dividends on Graber’s
preferred stock were in arrears for one year, $54,000 (6,000 × $9).
The computation of preferred stock equity is as follows.
Call price (6,000 shares × $120) $720,000

Dividends in arrears (6,000 shares × $9) 54,000
Preferred stock equity $774,000

Using the stockholders’ equity section of Graber Inc. shown in
Illustration 14.14, assume Graber’s preferred stock is callable at
$120 per share and is cumulative, and that dividends on Graber’s
preferred stock were in arrears for one year, $54,000 (6,000 × $9).
The computation of book value is as follows.

Book value per share may not equal market price per share. The
correlation between book value and the annual range of a
company’s market price per share is often remote.
Book-Value Market Range

Company (year-end) (for the year)
The Limited, Inc. $13.38 $31.03−$22.89
H. J. Heinz Company $ 7.48 $40.61−$34.53
Cisco Systems $ 3.66 $21.24−$17.01
Wal-Mart Stores, Inc. $12.79 $50.87−$42.31

A Look at IFRS (1 of 5)
Key Points
Similarities
• The accounting related to prior period adjustment is essentially the
same under IFRS and GAAP.
• The stockholders’ equity section is essentially the same under I FRS and
GAAP. However, terminology used to describe certain components is
often different. These differences are discussed in Chapter 13.

Key Points
Similarities
• The income statement using IFRS is called the statement of
comprehensive income. A statement of comprehensive income is
presented in a one- or two-statement format. The single-statement
approach includes all items of income and expense, as well as each
component of other comprehensive income or loss by its individual
characteristic. In the two-statement approach, a traditional income
statement is prepared. It is then followed by a statement of
comprehensive income, which starts with net income or loss and then
adds other comprehensive income or loss items. Regardless of which
approach is reported, income tax expense is required to be reported.

Key Points
Similarities
• The computations related to earnings per share are essentially the
same under IFRS and GAAP.
Differences
• The term reserves is used in IFRS to indicate all non–contributed
(non–paid-in) capital. Reserves include retained earnings and other
comprehensive income items, such as revaluation surplus and
unrealized gains or losses on available-for-sale securities.
• IFRS often uses terms such as retained profits or accumulated profit or
loss to describe retained earnings. The term retained earnings is also
often used.

Key Points
Differences
• Equity is given various descriptions under IFRS, such as shareholders’
equity, owners’ equity, capital and reserves, and shareholders’ funds.

Looking to the Future
The IASB and the FASB are currently working on a project related to
financial statement presentation. An important part of this study is to
determine whether certain line items, subtotals, and totals should be
clearly defined and required to be displayed in the financial statements.
For example, it is likely that the statement of stockholders’ equity and its
presentation will be examined closely.
Both the IASB and FASB are working toward convergence of any
remaining differences related to earnings per share computations. This
convergence will deal with highly technical changes beyond the scope of
this textbook.

Copyright
Copyright © 2018 John Wiley & Sons, Inc.
All rights reserved. Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Act without the express written permission of the
copyright owner is unlawful. Request for further information should be addressed to the
Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up
copies for his/her own use only and not for distribution or resale. The Publisher assumes
no responsibility for errors, omissions, or damages, caused by the use of these programs
or from the use of the information contained herein.

PDF 14 Pengantar Akun

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

PDF 14 Pengantar Akun

Uploaded by

Copyright:

Available Formats

Accounting Principles

Copyright ©2018 John Wiley & Sons, Inc. 2

Copyright ©2018 John Wiley & Sons, Inc. 3

Copyright ©2018 John Wiley & Sons, Inc. 4

Copyright ©2018 John Wiley & Sons, Inc. 5

Jan. 20 Dividends Payable 50,000

Copyright ©2018 John Wiley & Sons, Inc. 7

Dividends in arrears ($35,000 × 2) $ 70,000

Copyright ©2018 John Wiley & Sons, Inc. 8

Copyright ©2018 John Wiley & Sons, Inc. 9

Total dividend $50,000

Copyright ©2018 John Wiley & Sons, Inc. 11

Dec. 31 Cash Dividends 50,000

Copyright ©2018 John Wiley & Sons, Inc. 12

Copyright ©2018 John Wiley & Sons, Inc. 13

Copyright ©2018 John Wiley & Sons, Inc. 14

Copyright ©2018 John Wiley & Sons, Inc. 15

Copyright ©2018 John Wiley & Sons, Inc. 16

Copyright ©2018 John Wiley & Sons, Inc. 17

Copyright ©2018 John Wiley & Sons, Inc. 18

Common Stock Dividends Distributable 50,000

Copyright ©2018 John Wiley & Sons, Inc. 19

Copyright ©2018 John Wiley & Sons, Inc. 20

Copyright ©2018 John Wiley & Sons, Inc. 21

Copyright ©2018 John Wiley & Sons, Inc. 22

Copyright ©2018 John Wiley & Sons, Inc. 23

Copyright ©2018 John Wiley & Sons, Inc. 24

Total paid-in capital 500,000 $ 0 500,000

Copyright ©2018 John Wiley & Sons, Inc. 25

Sing CD Company has had five years of record earnings. Due

Copyright ©2018 John Wiley & Sons, Inc. 26

Original After After

Copyright ©2018 John Wiley & Sons, Inc. 27

Copyright ©2018 John Wiley & Sons, Inc. 28

Copyright ©2018 John Wiley & Sons, Inc. 29

Copyright ©2018 John Wiley & Sons, Inc. 30

Copyright ©2018 John Wiley & Sons, Inc. 32

Copyright ©2018 John Wiley & Sons, Inc. 33

$821 ÷ $2,693 = 30.5%

Copyright ©2018 John Wiley & Sons, Inc. 34

Copyright ©2018 John Wiley & Sons, Inc. 35

(a) Compute return on common stockholders’ equity for each year,

Copyright ©2018 John Wiley & Sons, Inc. 37

Copyright ©2018 John Wiley & Sons, Inc. 38

Copyright ©2018 John Wiley & Sons, Inc. 39

Income Tax Expense 46,800

Copyright ©2018 John Wiley & Sons, Inc. 40

Copyright ©2018 John Wiley & Sons, Inc. 41

Copyright ©2018 John Wiley & Sons, Inc. 42

(a) Compute earnings per share for each

Copyright ©2018 John Wiley & Sons, Inc. 44

Copyright ©2018 John Wiley & Sons, Inc. 45

Copyright ©2018 John Wiley & Sons, Inc. 46

Copyright ©2018 John Wiley & Sons, Inc. 47

Copyright ©2018 John Wiley & Sons, Inc. 48

Copyright ©2018 John Wiley & Sons, Inc. 49

Call price (6,000 shares × $120) $720,000

Copyright ©2018 John Wiley & Sons, Inc. 50

Copyright ©2018 John Wiley & Sons, Inc. 51

Book-Value Market Range

Copyright ©2018 John Wiley & Sons, Inc. 52

Copyright ©2018 John Wiley & Sons, Inc. 53

Copyright ©2018 John Wiley & Sons, Inc. 54