Financial Accounting Tools for Business Decision Making chapter 11 reporting analyzing stockholders equyti
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11-1
11
REPORTING
AND ANALYZING
STOCKHOLDERS’
EQUITY
11-2
Financial Accounting, Seventh Edition
Learning
Learning Objectives
Objectives
After studying this chapter, you should be able to:
11-3
1.
Identify and discuss the major characteristics of a corporation.
2.
Record the issuance of common stock.
3.
Explain the accounting for the purchase of treasury stock.
4.
Differentiate preferred stock from common stock.
5.
Prepare the entries for cash dividends and understand the effect of
stock dividends and stock splits.
6.
Identify the items that affect retained earnings.
7.
Prepare a comprehensive stockholders’ equity section.
8.
Evaluate a corporation’s dividend and earnings performance from a
stockholder’s perspective.
Preview of Chapter 11
11-4
Financial Accounting
Seventh Edition
Kimmel Weygandt Kieso
The
The Corporate
Corporate Form
Form of
of Organization
Organization
An entity separate and distinct from its owners.
Classified by Purpose
Classified by Ownership
Not-for-Profit
Publicly held
For Profit
Privately held
►
Salvation Army
►
►
American Cancer
Society
►
IBM
►
Caterpillar
►
General Electric
11-5
►
Cargill Inc.
LO 1 Identify and discuss the major characteristics of a corporation.
Characteristics
Characteristics of
of aa Corporation
Corporation
Characteristics that distinguish corporations from
proprietorships and partnerships.
11-6
Separate Legal Existence
Limited Liability of Stockholders
Transferable Ownership Rights
Ability to Acquire Capital
Continuous Life
Corporate Management
Government Regulations
Additional Taxes
Advantages
Disadvantages
LO 1 Identify the major characteristics of a corporation.
Characteristics
Characteristics of
of aa Corporation
Corporation
Characteristics that distinguish corporations from
proprietorships and partnerships.
Corporation acts
Separate Legal Existence
under its own name
rather than in the
Limited Liability of Stockholders
name of its
Transferable Ownership Rights
stockholders.
Ability to Acquire Capital
11-7
Continuous Life
Corporate Management
Government Regulations
Additional Taxes
LO 1 Identify the major characteristics of a corporation.
Characteristics
Characteristics of
of aa Corporation
Corporation
Characteristics that distinguish corporations from
proprietorships and partnerships.
11-8
Separate Legal Existence
Limited Liability of Stockholders
Transferable Ownership Rights
Ability to Acquire Capital
Continuous Life
Corporate Management
Government Regulations
Additional Taxes
Limited to their
investment.
LO 1 Identify the major characteristics of a corporation.
Characteristics
Characteristics of
of aa Corporation
Corporation
Characteristics that distinguish corporations from
proprietorships and partnerships.
11-9
Separate Legal Existence
Limited Liability of Stockholders
Transferable Ownership Rights
Ability to Acquire Capital
Continuous Life
Corporate Management
Government Regulations
Additional Taxes
Shareholders may
sell their stock.
LO 1 Identify the major characteristics of a corporation.
Characteristics
Characteristics of
of aa Corporation
Corporation
Characteristics that distinguish corporations from
proprietorships and partnerships.
11-10
Separate Legal Existence
Limited Liability of Stockholders
Transferable Ownership Rights
Ability to Acquire Capital
Continuous Life
Corporate Management
Government Regulations
Additional Taxes
Corporation can
obtain capital
through the issuance
of stock.
LO 1 Identify the major characteristics of a corporation.
Characteristics
Characteristics of
of aa Corporation
Corporation
Characteristics that distinguish corporations from
proprietorships and partnerships.
11-11
Separate Legal Existence
Limited Liability of Stockholders
Transferable Ownership Rights
Ability to Acquire Capital
Continuous Life
Corporate Management
Government Regulations
Additional Taxes
Continuance as a
going concern is not
affected by the
withdrawal, death, or
incapacity of a
stockholder,
employee, or officer.
LO 1 Identify the major characteristics of a corporation.
Characteristics
Characteristics of
of aa Corporation
Corporation
Characteristics that distinguish corporations from
proprietorships and partnerships.
11-12
Separate Legal Existence
Limited Liability of Stockholders
Transferable Ownership Rights
Ability to Acquire Capital
Continuous Life
Corporate Management
Government Regulations
Additional Taxes
Separation of
ownership and
management
prevents owners
from having an
active role in
managing the
company.
LO 1 Identify the major characteristics of a corporation.
Characteristics
Characteristics of
of aa Corporation
Corporation
Characteristics that distinguish corporations from
proprietorships and partnerships.
11-13
Separate Legal Existence
Limited Liability of Stockholders
Transferable Ownership Rights
Ability to Acquire Capital
Continuous Life
Corporate Management
Government Regulations
Additional Taxes
LO 1 Identify the major characteristics of a corporation.
Characteristics
Characteristics of
of aa Corporation
Corporation
Characteristics that distinguish corporations from
proprietorships and partnerships.
11-14
Separate Legal Existence
Limited Liability of Stockholders
Transferable Ownership Rights
Ability to Acquire Capital
Continuous Life
Corporate Management
Government Regulations
Additional Taxes
Corporations pay
income taxes as a
separate legal entity
and in addition,
stockholders pay
taxes on cash
dividends.
LO 1 Identify the major characteristics of a corporation.
The
The Corporate
Corporate Form
Form of
of Organization
Organization
Stockholders
Illustration 11-1
Corporation
organization chart
Chairman and
Board of
Directors
President and
Chief Executive
Officer
General
Counsel/
Secretary
Vice President
Marketing
Treasurer
11-15
Vice President
Finance/Chief
Financial Officer
Vice President
Operations
Vice President
Human
Resources
Controller
LO 1 Identify and discuss the major characteristics of a corporation.
11-16
Other
Other Forms
Forms of
of Business
Business Organization
Organization
Other Forms of Business Organization
11-17
Limited partnerships
Limited liability partnerships (LLPs)
Limited liability companies (LLCs)
S Corporation
►
No double taxation.
►
Cannot have more than 75 shareholders.
LO 1 Identify and discuss the major characteristics of a corporation.
The
The Corporate
Corporate Form
Form of
of Organization
Organization
Forming a Corporation
Initial Steps:
File application with the Secretary of State.
State grants charter.
Corporation develops by-laws.
Companies generally incorporate in a state whose laws are
favorable to the corporate form of business (Delaware, New Jersey).
Corporations engaged in interstate commerce must obtain a license
from each state in which they do business.
11-18
LO 1 Identify and discuss the major characteristics of a corporation.
The
The Corporate
Corporate Form
Form of
of Organization
Organization
Stockholders Rights
Illustration 11-3
1. Vote in election of board of
directors and on actions that
require stockholder approval.
2. Share the corporate earnings
through receipt of dividends.
11-19
LO 1 Identify and discuss the major characteristics of a corporation.
The
The Corporate
Corporate Form
Form of
of Organization
Organization
Stockholders Rights
Illustration 11-3
3. Keep the same percentage ownership when new shares
of stock are issued (preemptive right).
11-20
LO 1 Identify and discuss the major characteristics of a corporation.
The
The Corporate
Corporate Form
Form of
of Organization
Organization
Stockholders Rights
Illustration 11-3
4. Share in assets upon liquidation in proportion to their
holdings. This is called a residual claim.
11-21
LO 1 Identify and discuss the major characteristics of a corporation.
Stock
Stock Issue
Issue Considerations
Considerations
Authorized Stock
11-22
Charter indicates the amount of stock that a
corporation is authorized to sell.
Number of authorized shares is often reported in the
stockholders’ equity section.
LO 2 Record the issuance of common stock.
Stock
Stock Issue
Issue Considerations
Considerations
Prenumbered
Shares
Illustration 11-4
Name of corporation
Stockholder’s
name
Signature of
corporate official
11-23
LO 2 Record the issuance of common stock.
Stock
Stock Issue
Issue Considerations
Considerations
Issuance of Stock
11-24
Corporation can issue common stock
►
directly to investors or
►
indirectly through an investment banking firm.
Top five exchanges by value of shares traded:
1.
New York Stock Exchange
2.
Nasdaq stock market
3.
London Stock Exchange
4.
Tokyo Stock Exchange
5.
Euronext
LO 2 Record the issuance of common stock.
11-25
