ACCOUNTING FINAL

corporations

business entity formed under state law, owned by stockholders, and distinct from its owners with unlimited life and limited ability

equity

retained earnings + paid-in capital

retained earnings

cumulative income retained (not paid to stockholders)

paid-in capital

amount contributed to the company by shareholders

right of shareholders

1. right to vote for board of directors

2. right to receive proportionate share of dividends paid

3. right to receive proportionate share of assets upon liquidation

4. preemptive right to maintain ownership percentage

authorized shares

approved in corporate charter to sell

issued shares

shares that have been allocated and sold to shareholders

outstanding shares

shares told to investors - repurchased shares (treasury stock)

journal entry to issue stock

DR cash (amount received

CR Common/Preferred Stock (par or stated value)

CR Paid-in Capital (plug)

treasury stock

contra-equity account, occurs when a company repurchases its own stock

reasons for acquiring treasury stocks

• reissue shares to officers and employees under bonus & stock compensation plans

• have additional shares available for use in the acquisition of other companies

• increase trading of the company’s stock and enhance market price

• increase earnings per share

Journal Entry of Treasury Stock

DR treasury stock (cost * # of shares)

CR cash

sale of T/S (above cost)

DR cash

CR treasury stock (at cost)

CR PIC - T/S (extra)

sale of T/S (below cost)

DR cash

DR PIC-TS (only to extend that there are credits)

DR Retained Earnings (if needed to balance entry)

CR treasury stock (at cost)

dividends

return of earnings to stockholders

cash dividend effects

cash decrease, retained earnings decrease

property dividend effects

asset decrease, retained earnings decrease

stock dividend effects

no change to total assets, retained earnings decrease, Common Stock increase (no change to total equity)

declaration date journal entry

DR RE

CR common Dividend Payable

record date

no journal entry

Payment date

DR Common Dividend Payable

CR cash

calculate P/S dividend

% of par or $ amount per share

cumulative P/S dividend

P/S holders must receive dividends in arrears (passed dividends) before C/S holders can be paid dividends

Non-cumulative P/S dividends

no need to pay dividends in arrears to P/S holders

stock splits

increases number of shares authorized, issued, and outstanding, decreases par value (no journal entry)

earnings per share

(net income - P/S dividends) / weighted-average # of C/S shares outstanding

financial statement analysis

applies analytical tools to financial statements and related data for making business decisions

internal users

provide information to improve efficiency and effectiveness

external users

make investing and lending decisions & monitor performance

intracompany

current performance vs. prior performance

competitor

current performance vs. competitor

industry

current performance vs. industry standards

guidelines

current performance vs. rule of thumb

horizontal analysis

comparison of financial condition and performance over time

vertical analysis

comparison of financial condition and performance to a base amount

ratio analysis

measurement of key relations between financial statement items

liquidity and efficiency

ability to meet short-term obligations and to efficiently generate revenues

solvency

ability to meet long-term obligations and generate future revenues

profitability

ability to provide financial rewards to attract and retain financing

market prospects

ability to generate positive market expectations

building blocks of analysis

liquidity and efficiency

solvency

profitability

market prospects

dollar change (horizontal analysis)

current year (analysis year)- prior year (base period)

percent change (horizontal analysis)

(current year - prior year) / prior year x 100

common-size percent (B/S) - Horizontal analysis

(analysis amount / total assets) x 100

common-size percent (I/S) - vertical analysis

(analysis amount / total sales) x 100

working capital

current assets - current liabilities

current ratio

current assets / current liabilities

total PIC

par value + additional PIC

additional PIC

total proceeds from issuance - par value