Phillips PLL 6e Chap11

Chapter 11
Stockholders’ Equity
PowerPoint Author:
Brandy Mackintosh, CPA, CA
Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 11-1
Learning Objective 11-1
Explain the role of stock in

financing a corporation.
Corporate Ownership
The major advantage of the corporate form of business
is the ease of raising capital as both large and small
investors can participate in corporate ownership.
Simple to Easy to Provides

become an transfer limited
owner ownership liability
Because a corporation is a separate legal entity, it can:

 Own assets
 Incur liabilities
 Sue and be sued
 Enter into contracts
Corporate Ownership, continued
 Voting rights
 Dividends
Stockholder
Benefits
 Residual claims
 Preemptive rights
Equity Versus Debt Financing
Advantages
Advantages of
of equity
equity and
and debt
debt financing
financing
Advantages of equity Advantages of debt

• Equity does not have to • Interest on debt is tax
be repaid. deductible.
• Dividends are optional. • Debt does not change
stockholder control.
Contributed
Capital
Accumulated
Other Stockholders’ Retained
Comprehensive
Income (Loss)
Equity Earnings
Treasury
Stock
Explain and analyze common

stock transactions.
Authorization, Issuance, and
Repurchase of Stock
Authorized Outstanding shares are

issued shares that are
Shares owned by stockholders.
Issued Unissued
shares are
Outstanding shares of
The maximum number
authorized Unissued
stock are
Issued Shares
of shares of capital
shares of Shares
shares that
Shares stockstock
that that can be never
have
haveissued
been to the public.
been
Treasury Treasury shares are
distributed to distributed to
Shares
stockholders. issued shares that have
stockholders.
been reacquired by the
corporation.
Authorization, Issuance, and
Repurchase of Stock, continued
Stock Authorization
Par value is typically a very

nominal amount such a $0.01
per share.

Par
Par value
value is
is an
an Market price is the
arbitrary
arbitrary amount
amount amount that each
assigned
assigned toto each
each share of stock will sell
share
share of
of stock
stock when
when itit for in the market.
is
is authorized.
authorized.
Stock Authorization, continued
No-Par Value Common Stock
Some states do not

require a par value to
be stated in the charter.
Stock Issuance
Initial public offering Seasoned new issue

(IPO)
The first time a Subsequent issues

corporation issues of new stock to the
stock to the public. public.
National Beverage
Public
issues stock.
Stock Issuance, continued
Most issues of stock to the public are cash transactions.
National Beverage issued 100,000 shares of

$0.01 par value common stock for $20 per share.
1 Analyze
Assets = Liabilities + Stockholders’ Equity
Cash +2,000,000 Common Stock +1,000
Additional Paid-in
Capital +1,999,000
2 Record
Cash (100,000 × $20) 2,000,000
Common Stock (100,000 × $0.01) 1,000
Additional Paid-In Capital (2,000,000 – 1,000) 1,999,000
Stock Exchanged Between Investors
Transactions between two investors do not

affect the corporation’s accounting records.
I’d like to sell 100 I’d like to buy 100

shares of National shares of National
Beverage stock. Beverage stock.
Stockholder #1 Stockholder #2
Stock Used to Compensate Employees
Employee pay packages can include stock options.
This gives the employees the option to acquire

company stock at a later date at a predetermined
price.
If the employees work hard and meet the

corporation’s goals, the stock price should increase.
Employees can then exercise their option to acquire

stock at the lower predetermined price and sell it at
the higher price for a profit.
Repurchase of Stock
A corporation repurchases its stock to:
 Send a signal that the company believes its
stock is worth acquiring
 Obtain shares to reissue for the purchase of
other companies
 Obtain shares to reissue to employees as part
of stock option plans
 Reduce the number of outstanding shares to
increase per-share measures of earnings
Repurchase of Stock, continued
National Beverage
repurchases its
own stock
Stockholders
(Treasury stock)
Employee
compensation Employee Stock options allow
package includes employees to purchase
salary plus stock stock at a later date from
options. the corporation at a
fraction of the stock’s
market price.
Repurchase of Stock Sustained
Treasury
No voting
Contra stock is not
or an asset.
equity
dividend
account
rights
When stock is reacquired, the corporation

records the treasury stock at cost.
Repurchase of Stock, concluded
National Beverage reacquired 50,000 shares

of its common stock at $25 per share.
1 Analyze
Cash -1,250,000 Treasury
Stock (+xSE) -1,250,000
2 Record
Treasury Stock (+xSE) 1,250,000
Cash 1,250,000
Reissuance of Treasury Stock
National Beverage reissued 5,000 shares of the
Treasury Stock at $28 per share.
1 Analyze
Cash +140,000 Treasury Stock (-xSE) +125,000
Additional Paid-in
Capital +15,000
2 Record
Cash (5,000 x $28) 140,000
Treasury Stock (-xSE) (5,000 x $25) 125,000
Additional Paid-In Capital [5,000 x ($28 - $25)] 15,000
No profit or loss is recognized on treasury stock transactions.

Explain and analyze cash

dividends, stock dividends,
and stock split transactions.
Cash Dividends on Common Stock
Declared by board
of directors
Not legally
required
Creates liability at
declaration
Requires sufficient Retained

Earnings and Cash
Dividends Dates
1. Declaration Date
2. Date of Record
3. Date of Payment
4. Year End
Dividends Dates Example
National Beverage declares a cash dividend of

$238,000,000 during its 2016 fiscal year.
1 Analyze
Dividends Dividends −238,000,000
Payable +238,000,000
2 Record
Dividends 238,000,000
Dividends Payable 238,000,000
Dividends Dates Example, continued
National Beverage paid the previously declared

cash dividend of $238,000,000.
1 Analyze
Cash −238,000,000 Dividends
Payable −238,000,000
2 Record
Dividends Payable 238,000,000
Cash 238,000,000
Dividends Dates Example, concluded
All temporary accounts, including Dividends, are closed

into Retained Earnings at each accounting year-end.
1 Analyze
Dividends +238,000,000
Retained
Earnings −238,000,000
2 Record
Retained Earnings 238,000,000
Dividends 238,000,000
Stock Dividends
Distribution of additional shares
of stock to stockholders
No change in total No change in par values

stockholders’ equity
All stockholders retain same
percentage ownership.
Corporations issue stock dividends to:

 Reduce the market price per share of stock
 Demonstrate commitment to stockholders while conserving
cash during difficult times
 Signal that the company expects strong financial performance
in the future
Stock Dividends, continued
Small Large
Stock dividend < 25% Stock dividend > 25%
Record at current Record at par value of

market value of stock stock
The journal entry moves an amount from Retained

Earnings to other equity accounts.
Stock Splits
An increase in the number of shares and a corresponding decrease
in par value per share. Retained earnings is not affected.
A stock split creates more

pieces of the same pie.
Assume that a corporation had 1,000,000 shares of $0.01 par

value common stock outstanding before a 2–for–1 stock split.
Comparison of Distributions to
Stockholders
Describe the characteristics of

preferred stock and analyze
transactions affecting
preferred stock.
Preferred Stock Issuance
Different voting rights
Preferred Stock Usually has a fixed dividend rate
Priority over common stock
National Beverage issued 400,000 shares of its $1
par value preferred stock for $19,704,000.
1 Analyze
Cash +19,704,000 Preferred Stock +400,000
Additional Paid-in
Capital +19,304,000
2 Record
Cash 19,704,000
Preferred Stock 400,000
Additional Paid-in Capital 19,304,000
Preferred Stock Redemption
National Beverage redeemed 120,000 shares of its $1

par value preferred stock for $6,000,000 in 2016.
1 Analyze
Cash −6,000,000 Preferred Stock −120,000
Additional Paid-in
Capital −5,880,000
2 Record
Additional Paid-in Capital 5,880,000
Cash 6,000,000
Preferred Stock Dividends
• 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.
If the preferred stock is noncumulative, any

dividends not declared in previous years are lost
permanently.
Preferred Stock Dividends Example
Assume the preferred stock of Flavoria carries

only a current dividend preference and that the
company declares dividends totaling $8,000 in
2018 and $10,000 in 2019. How much would the
preferred and common stockholders receive in
2018 and 2019?
Preferred Stock Dividends Example,
continued
Preferred Stock Dividends Example
Sustained
Assume that Flavoria Company has the same
amount of stock outstanding. However, assume
that dividends are in arrears for 2016 and 2017.
How much would the preferred and common
stockholders receive in 2018 and 2019?
Preferred Stock Dividends, concluded
Retained Earnings
Total cumulative amount of reported net income less any
net losses and dividends declared since the company
started operating
Baker Company
Comparative Balance Sheets (Partial)
For Year Ended December 31
2018 2017
Common Stock $ 100,000 $ 100,000
Additional Paid-in Capital 750,000 750,000
Retained Earnings (Deficit) 50,000 (70,000)
Total Stockholders’ Equity 900,000 780,000
Baker Company incurred a loss of $120,000 in 2017 that

resulted in an Accumulated Deficit in Retained Earnings.
Statement of Stockholders’ Equity
Analyze the earnings per

share (EPS), return on equity
(ROE), and price/earnings
(P/E) ratios.
Earnings Per Share (EPS)
Earnings per share is probably the single
most widely watched financial ratio.
Net Income − Preferred Dividends

EPS =
Average Number of Common Shares Outstanding
National Beverage’s income for 2016 was $61.2

million, preferred dividends of $0.20 million, and
the average number of shares outstanding during
the year was 46.6 million.
$61.2 − $0.2 = $1.31 per share

EPS =
46.6 Shares
Return on Equity (ROE)
Return on equity is the amount earned for each
dollar invested by common stockholders.
Net Income − Preferred Dividends

ROE =
Average Common Stockholders’ Equity
National Beverage’s income for 2016 was $61.2 million,

preferred dividends were $0.2 million, and the average
Common Stockholders’ Equity was $176.8 million.
$61.2 − $0.2
ROE = = 34.5 percent
$176.8
Price/Earnings (P/E) Ratio
The P/E ratio is a measure of the value that
investors place on a company’s common stock.
Current Stock Price (per share)

P/E =
Earnings Per Share (annual)
National Beverage’s stock price was $61.86 when

the company reported its 2016 EPS of $1.31.
$ 61.86
P/E = = 47.2
$ 1.31
Comparison of EPS, ROE, and P/E
Ratios
Supplement 11A
Owners’ Equity for Other Forms of

Business
Learning Objective 11-S1
Account for owners’ equity in

other forms of business.
Owner’s Equity for a Sole
Proprietorship
Only two owner’s equity accounts
A Capital account to record A Withdrawal account to

the owner’s investments and record the owner’s
the periodic income or loss withdrawals of assets
No separate retained Closed to the capital account

earnings account at the end of each period
Accounting for Owner’s Equity for a
Sole Proprietorship
To record a $150,000 investment by H. Simpson, the owner
To record H. Simpson’s $1,000 monthly withdrawal
Accounting for Owner’s Equity for a
Sole Proprietorship, continued
To close revenue and expense accounts to capital
To close the $1,000 monthly drawings to capital
Accounting for Partnership Equity
Accounting for assets, liabilities, revenues, and

expenses follows the same accounting principles as
any other form of business.
Accounting for partners’ equity follows the same

pattern as for a sole proprietorship.
Separate capital and drawings accounts are

maintained for each partner.
Accounting for Partnership Equity, continued
To record investments by partners Able and Baker who will

divide net income as follows:
Able, 60% and Baker, 40%
To record the partners’ monthly withdrawal
Accounting for Partnership Equity,
concluded
To close revenue and expense accounts to partners’ capital
To close the monthly drawings to partners’ capital
Other Business Forms
Limited Limited
Liability Liability
Partnership Company
(LLP) (LLC)
• Protects innocent • Owners have same

partners from limited liability
malpractice or feature as owners of
negligence claims a corporation.
• Most states hold all • A limited liability

partners personally company typically
liable for has a limited life.
partnership debts.
Supplement 11B
Recording Stock Dividends
Learning Objective 11-S2
Record journal entries for

large and small stock
dividends
Large Stock Dividends
National Beverage declared a large stock dividend several

years ago, resulting in the issuance of 7.6 million
common shares with a par value of $0.01 per share.
1 Analyze
Retained Earnings −76,000
Common Stock +76,000
2 Record
Retained Earnings 76,000
Common Stock 76,000
Small Stock Dividends
Assume National Beverage issues a small stock dividend
of 10,000 common shares when its stock is trading at $20
per share. A small stock dividend is accounted for at the
market value of the company’s stock.
1 Analyze
Common Stock +100
Additional Paid-in
Capital +199,900
Retained Earnings -200,000
2 Record
Common Stock 100
Additional Paid-in Capital 199,900
Chapter 11
Solved Exercises
M11-4, M11-7, E11-3, E11-6, E11-8, E11-11,

E11-17
M11-4 Analyzing and Recording the Issuance of Common Stock
To expand operations, Aragon Consulting issued 1,000 shares of previously
unissued common stock with a par value of $1. The price for the stock was $50
per share. Analyze the accounting equation effects and record the journal entry
for the stock issuance.
1 Analyze
Cash +50,000 Common Stock +1,000
Additional Paid-in
Capital +49,000
2 Record
Cash 50,000
Common Stock 1,000
M11-4 Analyzing and Recording the Issuance of Common Stock,
continued
Would your answer be different if the par value were $2 per share? If, so,
analyze the accounting equation effects and record the journal entry for the
stock issuance with a par value of $2.
The effects on total assets and total stockholders’ equity would not differ, but
the amounts within the individual stockholders’ equity accounts would differ.
1 Analyze
Cash +50,000 Common Stock +2,000
Additional Paid-in
Capital +48,000
2 Record
Cash 50,000
Common Stock 2,000
M11-7 Determining the Amount of a Dividend
Netpass Company has 300,000 shares of common stock authorized, 270,000
shares issued, and 100,000 shares of treasury stock. The company’s board of
directors declares a dividend of $1 per share of common stock. What is the
total amount of the dividend that will be paid?
Dividends are paid on shares that are issued and outstanding.

Dividends are not paid on treasury stock.
Shares issued 270,000

Less treasury stock 100,000
Shares outstanding 170,000
Dividend per share ×$ 1.00
Total dividends paid $170,000
E11-3 Preparing the Stockholders’ Equity Section of the Balance
Sheet
North Wind Aviation received its charter during January authorizing the
following capital stock:
The following transactions occurred during the first year of operations in

the order given:
a. Issued a total of 40,000 shares of the common stock for $15 per share.
b. Issued 10,000 shares of the preferred stock at $16 per share.
c. Issued 3,000 shares of the common stock at $20 per share and 1,000
shares of the preferred stock at $16.
d. Net income for the first year was $48,000.
Required:
Prepare the stockholders’ equity section of the balance sheet at December
31.
E11-3 Preparing the Stockholders’ Equity Section of the Balance Sheet,
continued
NorthWind
North WindAviation
Aviation
Stockholders’Equity
December
December 31
31, 2013
Contributed Capital:
Preferred Stock, 8%, $10 par, 20,000 shares authorized,
11,000 shares issued and outstanding $$$110,000
110,000
11,000
Additional Paid-in Capital, Preferred 66,000
66,000
Common Stock, $1 par, 50,000 shares authorized,
43,000 shares issued and outstanding 43,000
43,000
10,000 shares
Additional × ($16 Common
Paid-in Capital, – $10) + 1,000 shares × ($16 – $10)617,000
617,000
Total Contributed Capital 836,000
Retained
40,000 Earnings
shares × ($15 – $1) + 3,000 shares × ($20 – $1) 48,000
Total Stockholders’ Equity $ 884,000
E11-6 Recording and Reporting Stockholders’ Equity Transactions
Ava School of Learning obtained a charter at the start of the year that
authorized 50,000 shares of no-par common stock and 20,000 shares of
preferred stock, par value $10. During the year, the following selected
transactions occurred:
a. Collected $40 cash per share from four individuals and issued 5,000
shares of common stock to each.
b. Issued 6,000 shares of common stock to an outside investor at $40 cash
per share.
c. Issued 8,000 shares of preferred stock at $20 cash per share.
Required:
1. Give the journal entries indicated for each of these transactions.
2. Prepare the stockholders’ equity section of the balance sheet at
December 31. At the end of the year, the accounts reflected net income
of $36,000. No dividends were declared.
E11-6 Recording and Reporting Stockholders’ Equity Transactions – Part
1 (a) and (b)
Required:
(a) Collected $40 cash per share from four individuals and issued 5,000
shares of common stock to each.
Cash (5,000 × $40 × 4) 800,000

Common Stock 800,000
(b) Issued 6,000 shares of common stock to an outside investor at $40

cash per share.
Cash (6,000 × $40) 240,000

Common Stock 240,000
E11-6 Recording and Reporting Stockholders’ Equity Transactions – Part
1 (c)
Required:
(c) Issued 8,000 shares of preferred stock at $20 cash per share.
Cash (8,000 × $20) 160,000

E11-6 Recording and Reporting Stockholders’ Equity Transactions
Required: Part 2
2. Prepare the stockholders’ equity section of the balance sheet at December
31, 2013. At the end of 2013, the accounts reflected net income of $36,000.
No dividends were declared.
Ava School of Learning

December 31,31
December 2013
Contributed Capital:
Preferred Stock, $10 par, 20,000 shares authorized,
8,000 shares issued and outstanding $ 80,000
Common Stock, no par, 50,000 shares authorized,
26,000 shares issued and outstanding 1,040,000
Capital, Preferred
80,000
Total Contributed Capital 1,200,000
Retained Earnings(20,000 shares × $40) + (6,000 shares × ($40) 36,000
8,000 shares x ($20 - $10)
Total Stockholders’ Equity $1,236,000
E11-8 Recording Treasury Stock Transactions and Analyzing Their
Impact
The following selected transactions occurred for Corner Corporation:
Feb. 1 Purchased 400 shares of the company’s own common stock at $20
cash per share; the stock is now held in treasury.
Jul. 15 Issued 100 of the shares purchased on February 1 for $30 cash per
share.
Sept. 1 Issued 60 more of the shares purchased on February 1 for $15 cash
per share.
Required:
1. Show the effects of each transaction on the accounting equation.
2. Give the indicated journal entries for each of the transactions.
3. What impact does the purchase of treasury stock have on dividends paid?
4. What impact does the issuance of treasury stock for an amount higher
than the purchase price have on net income?.
E11-8 Recording Treasury Stock Transactions and Analyzing Their Impact
- Part 1
Required:
1. Show the effects of each transaction on the accounting equation.
1 Analyze
Date
Date
Date Assets
Assets
Assets ==
= Liabilities
Liabilities
Liabilities ++ Stockholders’ Equity
Feb.
Feb. 11
1 Cash −−
Cash
Cash - 8,000
8,000
8,000 Treasury
Treasury Stock
Treasury Stock (+xSE)
Stock (+xSE) − −−8,000
(+xSE) 8,000
8,000
Feb.
Jul.
Jul. 15
15 Cash
Cash +
+ 3,000
3,000 Treasury
Treasury Stock
Stock (-xSE)
(−xSE) ++2,000
2,000
Additional Paid-in
Additional Paid-in
Capital
Capital – treasury+ 1,000
+ 1,000
Sept. 1 Cash + 900 Treasury Stock (−xSE) + 1,200

Additional Paid-in
Capital − 300
– Part 2
Required:
2. Give the indicated journal entries for each of the transactions.
2 Record Feb. 1
Treasury Stock (+xSE) 8,000
Cash (400 × $20) 8,000
2 Record July 15
Cash (100 × $30) 3,000
Treasury Stock (−xSE) 2,000
Additional Paid-In Capital 1,000
2 Record Sept. 1
Cash (60 × $15) 900
Additional Paid-in Capital 300
Treasury Stock (−xSE) (60 × $20) 1,200
– Part 3 and 4
Required:
3. What impact does the purchase of treasury stock have on dividends paid?
Dividends are not paid on treasury stock. Therefore, the total amount
of cash dividends paid is reduced when treasury stock is purchased.
4. What impact does the issuance of treasury stock for an amount higher than
the purchase price have on net income?
The sale of treasury stock for more or less than its original purchase
price does not have an impact on net income. The transaction affects
only balance sheet accounts.
E11-11 Recording the Payment of Dividends and Preparing a Statement
of Retained Earnings
The annual report for Sneer Corporation disclosed that the company declared
and paid preferred dividends in the amount of $100,000 in the current year. It
also declared and paid dividends on common stock in the amount of $2 per
share. During the year, Sneer had 1,000,000 common shares authorized;
300,000 shares had been issued; 100,000 shares were in treasury stock. The
opening balance in Retained Earnings was $800,000 and Net Income for the
current year was $300,000.
Required:
1. Prepare journal entries to record the declaration, and payment, of dividends
on (a) preferred and (b) common stock.
2. Using the information given above, prepare a statement of retained
earnings for the year ended December 31.
3. Prepare a journal entry to close the Dividends account.
E11-11 Recording the Payment of Dividends and Preparing a Statement of
Retained Earnings – Part 1 (a)

a. Preferred Stock
Declaration
Dividends 100,000
Dividends Payable 100,000
Payment
Cash 100,000
Retained Earnings – Part 1 (b)

b. Common Stock
Dividends are paid on shares that are issued and outstanding.

Dividends are not paid on treasury stock.
Shares issued 300,000

Less treasury stock 100,000
Shares outstanding 200,000
Dividend per share × $ 2.00
Total dividends paid $400,000
Retained Earnings – Part 1 (b) continued

b. Common Stock
Declaration
Dividends 400,000
Payment
Cash 400,000
Retained Earnings – Part 2
2. Using the information given above, prepare a statement of retained earnings

for the year ended December 31.
Sneer Corporation
Statement of Retained Earnings
For Year Ended December 31
Retained Earnings, January 1 $ 800,000
Plus: Net Income 300,000
Less: Dividends on Preferred Stock (100,000)
Dividends on Common Stock (400,000)
Retained Earnings, December 31 $ 600,000
Retained Earnings – Part 3
3. Prepare a journal entry to close the Dividends account.
Close Dividends Account

Dividends 500,000
E11-17 Determining the Effect of a Stock Repurchase on EPS and ROE
Swimtech Pools Inc. (SPI) reported the following in its financial statements for
the quarter ended March 31, 2018.
During the quarter ended March 31, SPI reported Net Income of $5,000 and
declared and paid cash dividends totaling $5,000.
Required:
1. Calculate earnings per share (EPS) and return on equity (ROE) for the
quarter ended March 31.
Net Income
EPS =
Average Number of Common Shares Outstanding
$5,000
EPS = = $0.10 per share
50,000 Shares
E11-17 Determining the Effect of a Stock Repurchase on EPS and ROE –
Part 1
Required:
1. Calculate earnings per share (EPS) and return on equity (ROE) for the
quarter ended March 31.
Net Income
ROE =
Average Stockholders’ Equity
$5,000
ROE = = 5.0 percent
$100,000
Part 2
Required:
2. Assume SPI repurchases 10,000 shares of its common stock at a price of $2
per share on April 1, 2018. Also assume that during the quarter ended June
30, 2018, SPI reported Net Income of $5,000, and declared and paid cash
dividends totaling $5,000. Calculate earnings per share (EPS) and return on
equity (ROE) for the quarter ended June 30, 2018.
$5,000
EPS = = $0.125 per share
40,000 Shares
If 10,000 shares are repurchased on April 1, 2018, only 40,000

shares would be outstanding from April 1 – June 30, 2018.
Part 2, continued
Required:
2. Assume SPI repurchases 10,000 shares of its common stock at a price of $2
per share on April 1, 2018. Also assume that during the quarter ended June
30, 2018, SPI reported Net Income of $5,000, and declared and paid cash
dividends totaling $5,000. Calculate earnings per share (EPS) and return on
equity (ROE) for the quarter ended June 30, 2018.
$5,000 = 5.6 percent

ROE =
($100,000 +80,000)/2
10,000 shares are repurchased for $20,000 on April 1, 2018,
resulting in a Stockholders’ Equity balance of $80,000 from
April 1 – June 30, 2018.
Part 3
Required:
3. Based on your calculations in requirements 1 and 2, what can you conclude
about the impact of a stock repurchase on EPS and ROE?
By repurchasing stock, a company can

increase both its EPS and ROE.
End of Chapter 11

Phillips PLL 6e Chap11

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Phillips PLL 6e Chap11

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Chapter 11

Explain the role of stock in

Simple to Easy to Provides

Because a corporation is a separate legal entity, it can:

Advantages of equity Advantages of debt

Explain and analyze common

Authorized Outstanding shares are

Par value is typically a very

No-Par Value Common Stock

Some states do not

Initial public offering Seasoned new issue

The first time a Subsequent issues

National Beverage issued 100,000 shares of

Transactions between two investors do not

I’d like to sell 100 I’d like to buy 100

Employee pay packages can include stock options.

This gives the employees the option to acquire

If the employees work hard and meet the

Employees can then exercise their option to acquire

When stock is reacquired, the corporation

National Beverage reacquired 50,000 shares

No profit or loss is recognized on treasury stock transactions.

Explain and analyze cash

Requires sufficient Retained

National Beverage declares a cash dividend of

National Beverage paid the previously declared

All temporary accounts, including Dividends, are closed

No change in total No change in par values

Corporations issue stock dividends to:

Record at current Record at par value of

The journal entry moves an amount from Retained

A stock split creates more

Assume that a corporation had 1,000,000 shares of $0.01 par

Describe the characteristics of

National Beverage redeemed 120,000 shares of its $1

• Current Dividend Preference: The current

If the preferred stock is noncumulative, any

Assume the preferred stock of Flavoria carries

Baker Company incurred a loss of $120,000 in 2017 that

Analyze the earnings per

Net Income − Preferred Dividends

National Beverage’s income for 2016 was $61.2

$61.2 − $0.2 = $1.31 per share

Net Income − Preferred Dividends

National Beverage’s income for 2016 was $61.2 million,

Current Stock Price (per share)

National Beverage’s stock price was $61.86 when

Owners’ Equity for Other Forms of

Account for owners’ equity in

Only two owner’s equity accounts

A Capital account to record A Withdrawal account to

No separate retained Closed to the capital account

To record H. Simpson’s $1,000 monthly withdrawal

To close the $1,000 monthly drawings to capital

Accounting for assets, liabilities, revenues, and

Accounting for partners’ equity follows the same

Separate capital and drawings accounts are

To record investments by partners Able and Baker who will

To record the partners’ monthly withdrawal

To close revenue and expense accounts to partners’ capital

To close the monthly drawings to partners’ capital

• Protects innocent • Owners have same

• Most states hold all • A limited liability