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30 Cards in this Set
- Front
- Back
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3 Advantages of Stock vs. Debt Financing?
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Flexibility
Exchanges facilitate trading Return on investment |
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3 Disadvantages of Stock vs. Debt Financing?
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Control
Tax consequences Impact on ratios |
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Expanded Accounting Equation?
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Assets = Liabilities + Stockholders’ Equity
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Retained Earnings Connects the?
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Income Statement and Balance Sheet
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5 Stockholders’ Equity Components?
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Common Stock
Treasury Stock Preferred Stock Retained Earnings Additional Paid-in Capital |
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Basic stock of corporation
Normally carries voting rights |
Common Stock
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Optional
Tailored to meet specific needs |
Preferred Stock
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3 Types of Shares of Stock?
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Authorized
Oustanding: Not repurchased or retired Issued: Sold or distributed |
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“Legal capital”
Arbitrary amount stated on stock certificate Also called “stated value” |
Par Value
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Amount received in excess of par when stock was originally issued
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Additional Paid-in Capital
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Net income retained in the business (not paid out as dividends) since its inception
Reinvested in a variety of assets (not necessarily liquid or cash) |
Retained Earnings
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Can tailor to specific needs of firm
Stated dividend rate -Percentage of the stock’s par value -Per-share amount Often carries dividend preference over common stock |
Preferred Stock
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4 Preferred Stock Features?
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Cumulative
Participating Callable Convertible |
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Record at fair market value of consideration given or received, whichever is more readily determinable
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Stock Issued for Noncash Consideration
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Company buys back its own stock
Contra-equity account (debit balance) Not outstanding (no voting rights) |
Treasury Stock
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5 Reasons for Repurchasing Stock?
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Provide for employee bonuses or benefit plans
Maintain a favorable market price Improve financial ratios Maintain control of ownership Prevent unwanted takeover or buyout attempts |
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2 Dividend Requirements?
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Sufficient cash
Positive retained earnings |
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Dividend Payout Ratio?
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Annual Dividend Amount / Annual Net Income
The % of earnings paid as dividends |
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Journal entry required to record dividends?
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(1) dividends declared
(2) dividends paid |
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Distribute dividends in arrears, if any, to preferred
Distribute current year’s dividends to preferred Distribute remainder to common (or to both if preferred is participating) |
Allocation of Cash Dividends
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Issue of additional shares proportionately to existing stockholders
Reasons: Insufficient cash Market price reduction Nontaxable to recipients |
Stock Dividends
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Results in additional issuance of shares
Reduces par value per share No change in Stockholders’ Equity accounts |
Stock Splits
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Not recorded in accounts
Reduce market price per share and make the stock more accessible to a wider range of investors Disclosed in notes |
Stock Splits
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Explains all the reasons for the difference between the beginning and the ending balance of each of the accounts in the Stockholders’ Equity category of the balance sheet
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Statement of Stockholders’ Equity
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the total change in net assets from all sources except investments by or distributions to the owners
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comprehensive income
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Rights that each share of common stock has to the net assets of corporation
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Book value per share
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Price at which stock is currently selling
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Market value per share
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Total Stockholders' Equity / Number of Shares of Stock Outstanding
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Book Value per Share
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Amount per share of net assets to which the company’s common stockholders have the rights
Does not indicate the price that should be paid by those who want to buy or sell the stock on the stock exchange |
Book Value per Share
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The selling price of the stock as indicated by the most recent transactions
Usually stated in a 52-week high and low More meaningful measure of the value of the stock than book value |
Market Value per Share
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