Chapter 11 - Accoutning

Front 1

Authorized number of shares

Back 1

Maximum number of share of a corporation capital stock that can be issued as specified in the charter.

Front 2

Issued Stock

Back 2

The total number of shares of stock that have been sold.

Front 3

Treasury Stock

Back 3

The stock that has been bought back by the company.

Front 4

Outstanding shares

Back 4

Total number of shares that are owned by the stockholders at any particular date.

Issued Shares - Treasury Stocks

Reported on the balance sheet.

Front 5

Common stock

Back 5

The basic voting stock issued by a corporation

Front 6

Par Value

Back 6

Nominal value per share of capital stock specified in the charter. It serves as basis for legal capital.

No relationship to the market value of the stock.

Front 7

Legal Capital

Back 7

Permanent amount of capital defined by state law that must remain invested in the business; serves as a cushion for investors.

Front 8

Initial Public Offering

Back 8

Involves the first initial sale of a company's stock to the public.

Front 9

Journal Entry for Issuance for stock

Back 9

Cash (A+)
Common Stock (SE+)[C]
Capital in excess of par value (SE+)[C]

Front 10

Journal Entry for Purchase of Treasury Stock

Back 10

Treasury Stock (-XSE, -SE) [D]
Cash (A-) [C]

Front 11

Journal Entry for Resale of Treasury Stock (For more than what was bought)

Back 11

Cash (A+) [D]
Treasury Stock (-XSE, SE+)[C]
Capital in excess of par (SE+)[C]

Front 12

Journal Entry for Resale of Treasury Stock (For Less than what was bought)

Back 12

Cash (A+)
Capital in excess of par (SE-)[D]
Treasury Stock (-XSE, SE+)[C]

Front 13

Dividend Yield Ratio

Back 13

Dividends per share / Market Price per share

Front 14

Declaration Date

Back 14

Date on which the board of directors officially approves the dividend. This creates a dividend liability,

Front 15

Record Date

Back 15

This is the date on which the corporation prepares the list of current stockholders based on its records. The dividend is only payable to people on the list at this date.

No journal Entry

Front 16

Payment Date

Back 16

Cash is distributed, to pay the dividends liability.

Front 17

Journal Entry of Declaration Date

Back 17

Retained Earnings (-SE) [D]
Dividends Payable (L+)[C]

Front 18

Journal Entry of Payment Date

Back 18

Dividends Payable (L-)[D]
Cash (A-) [C]

Front 19

2 Requirements for Cash Dividends

Back 19

1) Sufficient Retained Earnings

2) Sufficient Cash: There is money left over after purchase of assets, equipment

Front 20

Stock Dividends

Back 20

Distribution of additional shares of a corporation's own stock. Sold to the stockholders with no cost to the stockholders.

Front 21

Pro rata basis

Back 21

Stockholders with a certain percentage gets additional shares equal to the percentage of shares held

Front 22

Stock dividends

Back 22

Usually drops the price of the stock. So in relatively, the people are just back to the same place they are at.

They make it more attractive more new investors. It's cheaper to invest.

Front 23

Transfering accounts (Stock Dividends)

Back 23

Transfer an additional amount from "Retained Earnings" or "Capital in Excess of Par" into the "Common Stock"

Front 24

Large Stock dividends

Back 24

More than 20-25% of outstanding shares.

Amount transfered to "Common Stock" is based on "par value of additional stock issued"

Front 25

Small Stock dividends

Back 25

Less than 20-25%

Amount transfered is Common Stock account

Excess transferred to "Capital in Excess of Par Value" account.

Front 26

Journal Entry for Large Stock Dividend

Back 26

Retained Earnings (-SE)[D]
Common Stock (SE+)[C]

This doesn't change the actual "Stockholder's Equity" account

Front 27

Stock Split

Back 27

An increase in total number of authorized shares by a specified ratio. Does not decrease retained earnings.

Front 28

Transfering accounts (Stock Split)

Back 28

There is no transfereing of retained earnings is required.

This is done by reducing the par value, so it is still the same.

2-for-1. So bring in 1 stock, and get 2 in its place.

Front 29

Similarities and Differences between Stock Split and Stock Dividend

Back 29

They are similiar because they increase the number of shares of stockholder's without the stockholders having to invest in it.

It's different because Stock Split doesn't require a journal entry or transfering of accounts. It is just mentioned in the "Financial Statements"

Front 30

Prefered Stock

Back 30

Stock that has specified rights over common stock

Front 31

Preferred Stock Advantages

Back 31

-- doesn't dilute the ownership of the company. Because preferred stock holders don't get voting rights.

-- Preferred is less risky. They receive priority payment of dividends and distribution of assets.

-- Fixed dividend rate

Front 32

Current Dividend Preference

Back 32

Feature of preferred stock that grants priority on preferred dividends over common dividends.

This must be paid before common stock dividends are paid.

Front 33

Cumulative Dividend Preference

Back 33

Preferred stock feature that requires specified current dividends not paid in full to accumulate for every year in which they are not paid.

These cumulative preferred dividends must be paid before any common dividends can be paid.

Front 34

Dividends in arrears

Back 34

Dividends on cumulative preferred stock that have not been declared in prior years.