Bài giảng Financial Accounting - Chapter 10: Stockholders’ Equity

Stockholders’ EquityChapter 10 Learning ObjectivesIdentify the advantages and disadvantages of the corporate form of ownershipRecord the issuance of common stockContrast preferred stock with common stock and bonds payableAccount for treasury stockDescribe retained earnings and record cash dividends10-2Learning ObjectivesExplain the effect of stock dividends and stock splitsPrepare and analyze the stockholders’ equity section of a balance sheet and the statement of stockholders’ equityEvaluate company performance using information on stockholders’ equity10-3Part AInvested Capital10-4Learning Objective 1 Identify the advantages and disadvantages of the corporate form of ownership10-5CorporationsArticles of incorporation: corporate charter describing:Nature of business activitiesShares of stock to be issuedInitial board of directorsThe board of directors establish corporate policies and appoints officers who manage the corporation10-6Stages of Equity FinancingCorporations first raise money from founders of the business, friends, and familyTo grow, companies seek investments from:Angel investorsVenture capital firmsInitial public offering (IPO)10-7Public or PrivateAllows public investmentMany shareholdersStocks trade on stock exchanges or by over-the-counter (OTC) tradingRegulated by the (SEC) Examples—Wal-Mart, Microsoft, Intel Does not allow investment by the general publicFewer stockholdersStocks not traded in the open marketNot regulated by the (SEC)Examples—Cargill (agricultural commodities) Koch Industries (oil and gas), Chrysler (cars) PublicPrivate10-8Learning Objective 2 Record the issuance of common stock10-9Common StockTreasury stock: repurchased shares, included as part of shares issued, but excluded from shares outstanding10-10Par ValueLegal capital per share of stock that’s assigned when the corporation is first establishedHas no relationship to the market value today10-11Accounting for Common Stock Issues10-12Learning Objective 3 Contrast preferred stock with common stock and bonds payable10-13Preferred StockIssued in addition to common stock to attract wider investmentPreferred stockholders have:First rights to a specified amount of dividendsPreference over common stockholders in the distribution of assets at the time of dissolutionMost preferred stock does not have voting rights10-14Features of Preferred StockFlexibility allowed in its contractual provisionsTypes:Convertible: shares can be exchanged for common stock Redeemable: shares can be returned to the corporation at a fixed priceCumulative: shares receive priority for future dividends, if dividends are not paid in a given yearDividends in arrears - unpaid dividends10-15Learning Objective 4 Account for treasury stock10-16Treasury StockCorporation’s own stock that it has reacquiredCompanies buy back their own stock for various reasons:To boost underpriced stockTo distribute surplus cash without paying dividendsTo boost earnings per shareTo satisfy employee stock ownership plans10-17Purchase of Treasury Stock10-18Illustration 10.11—Stockholders’ Equity before and after Purchase of Treasury Stock10-19Reissuing Treasury Stock10-20Reissuing Treasury Stock10-21Part BEarned Capital10-22Learning Objective 5 Describe retained earnings and record cash dividends10-23Retained EarningsEarnings retained in the corporation and not paid out as dividendsEquals all net income, less all dividendsHas a normal credit balanceAccumulated deficit: a debit balance in retained earnings10-24DividendsDistributions by a corporation to its stockholdersDeclaration date: date on which board of directors declare the cash dividend to be paidRecord date: specific date on which the company will determine who will receive the dividend (registered owners of stock)Payment date: date of the actual cash distribution10-25Recording Cash Dividends10-26Learning Objective 6Explain the effect of stock dividends and stock splits10-27Stock Dividends and Stock SplitsStock dividends: additional shares of a company’s own stock given to stockholders as dividendsStock split: a large stock dividend that includes a reduction in the par or stated value per shareYou own 100 shares and assume aYou will get10% stock dividend 10 additional shares 20% stock dividend 20 additional shares 100% stock dividend100 additional sharesSmall stock dividendLarge stock dividend or stock split (2-for-1)10-28Stock Splits or Large Stock DividendsStock splitReduces par value per share and increases shares outstandingNo need to record transactionLarge stock dividendsRecords an increase in common stock and decrease in retained earningsRecorded at par value10-29Small Stock DividendsRecorded at market valueBelieved to have little impact on market price10-30Part CReporting Stockholders’ Equity10-31Learning Objective 7Prepare and analyze the stockholders’ equity section of a balance sheet and the statement of stockholders’ equity10-32Statement of Stockholders’ EquitySummarizes the changes in the balance in each stockholders’ equity account over a period of time10-33Learning Objective 8Evaluate company performance using information on stockholders’ equity10-34Return on EquityMeasures the ability of company management to generate earnings from the resources that owners provide10-35Return on the Market Value of EquityAnalysts often relate earnings to the market value of equityNet incomeMarket value of equityReturn on the market value of equity=10-36Earnings per ShareMeasures net income earned per share of common stockUseful in comparing earnings performance for the same company over timeNot useful for comparing earnings performance of one company with another10-37Price-Earnings RatioIndicates how the stock is trading relative to current earningsCommonly are in the range of 15 to 20Growth stocks: stocks whose future earnings investors expect to be higherValue stocks: stocks that are priced low in relation to current earnings10-38End of Chapter 1010-39