Stockholders Equity Chapter 14

authorized shares

maximum amount of shares in each class of stock as specified in the Corporate Charter

issued shares

amount of shares of each class of stock that have been sold

outstanding shares

amount of shares issued - shares of treasury stock (represents amount of issued stock still owned by stockholders and in the markets)

unissued shares

amount of shares of each class of stock that have not been sold to the public and have never been in the market (authorized shares - issued shares)

reserved shares

unissued shares “reserved” for certain activities

inherent right of common stockholders

to share proportionately in profits and losses (via dividends, when/if declared)

inherent right of common stockholders

to share proportionately in management (the right to vote for directors)

inherent right of common stockholders

to share proportionately in assets upon liquidation

inherent right of common stockholders

to share proportionately in any new issues of stock of the same class

preemptive right

to protect existing owners from involuntary dilution of ownership interest

what does % of par of preferred stock represent

what each preferred stock is entitled to when dividends are paid out

cumulative dividends

if a corporation fails to pay a dividend in any year, the dividend amount will accumulate every year until paid (dividends in arrears)

what happens if there’s dividends in arrears?

when a corporation declares dividends, it cannot pay any dividends to common stockholders until all dividends in arrears are paid out

noncumulative dividends

dividends not declared in a given year are lost forever

convertible feature of preferred stock

convertible into common stock at the stockholder’s discretion

direct costs incurred to sell stock

underwriting costs, accounting, legal and other fees, printing costs

issuance costs entry

debit APIC - common or preferred, credit cash or issuance costs payable if on account

treasury stock

shows the stock that corporations reacquired from the exchange markets which means corporations purchase their own stock that was previously sold

reissuance of treasury stock

the company will sell at the market price of its stock on the date of reissuance

selling price/share > original purchase price/share

debit cash, credit treasury stock, credit APIC from treasury stock

selling price/share < original purchase price/share

debit cash, debit APIC from treasury stock, credit treasury stock

retained earnings

the cumulative amount of earnings since the corporation was formed minus the cumulative amount of dividends that were declared

dividends

share of profits and retained earnings that a company pays out to its shareholders (based on outstanding shares only)

declaration date

board authorizes dividends

record date

registered shareholders are eligible for dividend

payment date

the company issues dividend checks

stock dividends

issuance by a company of its own stock to stockholders on a pro rata basis, without receiving any consideration in return

small stock dividends

record the stock that will be given at fair value as of date of declaration

large stock dividends

record the stock that will be given at par value

liquidating dividends

a type of payment that a corporation makes to its shareholders during a partial of full liquidation - it returns to stockholders part of their investment

stock split

an adjustment made by a company to their shares amount and par value, it effects the market/trading price of a stock, but also effects number of shares so market capitalization stays the same

2 for 1 split

doubles the number of shares outstanding, market price of each share gets cut in half, par value cut in half

disclosure of stock splits

all shares disclosed in the balance sheet as well as par value will be restated to the new amounts, must retroactively restate shares for all years disclosed in 10K or 10Q