Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Accounting: What the Numbers Mean Study Outlines and Overhead Masters Chapter 8 OWNERS' EQUITY - PAID-IN CAPITAL ACCOUNTS INCLUDED IN PAID-IN CAPITAL • COMMON STOCK (SOMETIMES CALLED CAPITAL STOCK) • PREFERRED STOCK (IF AUTHORIZED BY THE CORPORATION'S CHARTER) • ADDITIONAL PAID-IN CAPITAL KEY TERMINOLOGY FOR NUMBER OF SHARES OF STOCK • AUTHORIZED - BY THE CORPORATION'S CHARTER • ISSUED - SOLD IN THE PAST TO STOCKHOLDERS • OUTSTANDING - STILL HELD BY STOCKHOLDERS • TREASURY STOCK - SHARES OF ITS OWN STOCK PURCHASED AND HELD BY THE CORPORATION. THE NUMBER OF SHARES OF TREASURY STOCK IS THE DIFFERENCE BETWEEN THE NUMBER OF SHARES ISSUED AND THE NUMBER OF SHARES OUTSTANDING. KEY TERMINOLOGY FOR STOCK VALUE • PAR VALUE - AN ARBITRARY AMOUNT ASSIGNED TO EACH SHARE AT INCORPORATION. THE FIRM CAN ISSUE NO-PAR VALUE STOCK. IF NO-PAR VALUE STOCK HAS A "STATED VALUE", THE STATED VALUE IS LIKE A PAR VALUE. COMMON STOCK AND PREFERRED STOCK KEY IDEAS • COMMON STOCK REPRESENTS THE BASIC OWNERSHIP OF A CORPORATION. • PREFERRED STOCK REPRESENTS OWNERSHIP, BUT HAS SOME PREFERENCES RELATIVE TO COMMON STOCK. THESE INCLUDE: • PRIORITY CLAIM TO DIVIDENDS, AND • PRIORITY CLAIM TO ASSETS IN LIQUIDATION. • HOWEVER, PREFERRED STOCKHOLDERS ARE NOT USUALLY ENTITLED TO VOTE FOR DIRECTORS. KEY POINTS ABOUT DIVIDENDS ON PREFERRED STOCK • DIVIDENDS ARE USUALLY “CUMULATIVE,” WHICH MEANS THAT DIVIDENDS NOT PAID DURING ONE YEAR (IN ARREARS) MUST BE PAID IN A FUTURE YEAR BEFORE DIVIDENDS CAN BE PAID ON COMMON STOCK. • DIVIDEND AMOUNT IS EXPRESSED AS A CERTAIN AMOUNT PER SHARE ($3.50), OR AS A PERCENT OF PAR VALUE (7% OF PAR VALUE OF $50). PAID-IN CAPITAL AMOUNTS ON THE BALANCE SHEET WHAT'S GOING ON? • IF THE STOCK HAS A PAR VALUE, THE AMOUNTS OPPOSITE THE STOCK CAPTIONS ARE ALWAYS PAR VALUE MULTIPLIED BY THE NUMBER OF SHARES ISSUED. • THE DIFFERENCE BETWEEN THE PAR VALUE AND THE AMOUNT RECEIVED PER SHARE WHEN THE STOCK WAS ISSUED IS RECORDED AS ADDITIONAL PAID-IN CAPITAL. • IF THE STOCK IS NO-PAR VALUE STOCK (WITHOUT A STATED VALUE), THE AMOUNT OPPOSITE THE CAPTION IS THE TOTAL AMOUNT RECEIVED WHEN THE STOCK WAS ISSUED. RETAINED EARNINGS AND DIVIDENDS KEY IDEAS • RETAINED EARNINGS INCREASES EACH PERIOD BY THE AMOUNT OF NET INCOME FOR THAT PERIOD. (NET LOSSES DECREASE RETAINED EARNINGS.) • DIVIDENDS ARE DISTRIBUTIONS OF RETAINED EARNINGS TO THE STOCKHOLDERS, AND ARE A REDUCTION IN RETAINED EARNINGS. • CASH DIVIDENDS ARE DECLARED BY THE BOARD OF DIRECTORS AS AN AMOUNT PER SHARE. • STOCK DIVIDENDS ARE DECLARED BY THE BOARD OF DIRECTORS AS A PERCENTAGE OF THE PREVIOUSLY ISSUED SHARES. STOCK DIVIDENDS AFFECT ONLY RETAINED EARNINGS AND PAID-IN CAPITAL; ASSETS AND LIABILITIES ARE NOT AFFECTED. • CASH DIVIDENDS ARE NOT PAID ON TREASURY STOCK. STOCK DIVIDENDS ARE USUALLY ISSUED ON TREASURY STOCK. STOCK SPLITS KEY IDEA • A STOCK SPLIT INVOLVES ISSUING ADDITIONAL SHARES OF STOCK IN PROPORTION TO THE NUMBER OF SHARES CURRENTLY OWNED BY EACH STOCKHOLDER. THE RELATIVE OWNERSHIP INTEREST OF EACH STOCKHOLDER DOES NOT CHANGE. • BECAUSE THERE ARE MORE SHARES OF STOCK OUTSTANDING, THE MARKET PRICE OF EACH SHARE WILL FALL TO REFLECT THE SPLIT. BALANCE SHEET EFFECT OF STOCK SPLIT • DOLLAR AMOUNTS ON THE BALANCE SHEET ARE NOT AFFECTED. THE PAR VALUE IS REDUCED, AND THE NUMBER OF SHARES ISSUED IS INCREASED. OTHER COMPREHENSIVE INCOME (LOSS) HISTORICAL BACKGROUND • ALTHOUGH OWNERS’ EQUITY HAS CONSISTED OF TWO PRIMARY CATEGORIES (PAID-IN CAPITAL AND RETAINED EARNINGS), THERE HAS BEEN CONSIDERABLE DEBATE REGARDING WHICH ITEMS SHOULD BE ACCOUNTED FOR WITHIN “NET INCOME” VERSUS THOSE ITEMS THAT SHOULD BE ACCOUNTED FOR DIRECTLY WITHIN OWNERS’ EQUITY. KEY IDEA • A NEW CATEGORY OF OWNERS’ EQUITY—OTHER COMPREHENSIVE INCOME (LOSS)—WAS ESTABLISHED RECENTLY BY THE FASB TO HIGHLIGHT THE FOLLOWING UNREALIZED CHANGES IN OWNERS’ EQUITY: • CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENTS • UNREALIZED GAINS OR LOSSES ON AVAILABLEFOR-SALE MARKETABLE SECURITIES • ADDITIONAL MINIMUM PENSION LIABILITY ADJUSTMENTS KEY POINTS • ALL ITEMS OF INCOME (LOSS) ULTIMATELY AFFECT OWNERS’ EQUITY ON THE BALANCE SHEET. • THIS NEW CATEGORY OF OWNERS’ EQUITY HAS IMPROVED COMPARABILITY BETWEEN FIRMS WHILE MAINTAINING FLEXIBILITY IN FINANCIAL REPORTING.