Fin Acct 2 CH20

2 primary sources of se equity

paid in capital: invested in the company

retained earnings: amounts earned by the corporation

Shareholders equity balancesheet sections

Paid in Capital

• List all stock accounts at par

• then list all paid-in capital accounts excess of par

Retained earnings

Accumulated OCI

Treasury Stock ()

Comprehensive income

represents total nonowner changes in equity that do not appear on the income statement

AOCI

reflects all OCI thathas been reported in current and prior periods

Net holding gains (losses) on AFS

Gains (losses) on pensions plans

Deferred gains (losses) on derivatives

Adjustment from foreign currency translation

Disadvantages of incorporating

extensive reporting requirements

double taxation

S corp

limited liability, but no double taxation

LLC

S-corp but no limit on number of owners

the Model Business Corporation Act (MBCA)

guides states in their corporate statutes

defines corporate charter requirements

common shareholder rights

1. right to vote

2. right to share in profits

   1. right to distribution of assets

preferred share rights

1. dividend priority

2. liquidation priority

optional

1. right to convert to common

2. redemption privilege (basically put option)

issuance of par shares

dr. cash

cr. Common Stock (par)

Cr. Paid in capital (excess)

issuance of no par shares

Dr. Cash

Cr. Common Stock

journal entry if stock issued for PPE

Replace cash w PPE

how to account for share issue costs

no separate account— just lower cash by that amount

Retired vs Treasury stock

treasury shares are repurchased but not retired— they may be reissued, and are carried at the price paid to repurchase them. Retired shares are removed from the books as if they were never issued, decreasing paid in capital by original eop and decreasing common stock by par.

Retiring shares journal entry

if repurchase at a lower price:

Dr. common stock [par]

Dr. Paid in capital [og excess of par]

Cr. cash [price paid]

Cr. Paid-in capital— share repurchase [difference]

If repurchase at a higher price:

Dr. common stock [par]

Dr. paid in capital [excess of par]

Dr.Retained Earnings [like a distribution of earnings]

Cr. Cash

Buying treasury stock

Dr. Treasury Stock [paid]

Cr. Cash [paid]

Does not change common stock + paid in capital accounts because treasury stock “suspends” them, doesnt remove them.

Resale of shares

retired stock: because you removed the stock from the books, just treat as a normal issue.

For treasury stock at lower price:

Dr. cash 14

Cr. Treasury stock 13

Cr.paid in capital — share repurchase 1

For treasury stock at higher price:

Dr. Cash 10

Dr. Retained Earnings 1

Dr. Paid in capital — share repurchase 2

Cr. Treasury stock 13

Is treasury stock contra equity

yes

if treasury stock is reissued for more than cost, then net effect is to ____ cash and equity

increase

What does a credit balance to retained earnings imply

a dollar amount of earned assets not distributed to shareholders.

liquidating dividend

occurs if a dividend exceeds the balance in retained earnings.

Any portion of dividends not representing distribution of earnings but a return of invested capital should be a Dr. to paid in capital, not a Dr. to RE.

date of record

date that the company determines which stockholders will receive the dividend.

Ex-dividend date

1st day the stock trades without the right to receive the declared dividend

Dividend declaration date JE

Dr. Retained Earnings

Cr. Cash dividends payable

Stock dividend

Dr. Retained Earnings

Cr. Common Stock

Cr. Paid in capital

no overall effect…

stock splits

large stock dividend.