STOCKHOLDERS' EQUITY: PART 1 Flashcards
Stockholders’ Equity ( shareholders’s Equity or owners’ equity)
the owners’ claim to the net assets(A-L) of a corporation.
Capital Stock (legal capital)
the amount of capital that must be retained by the corporation for the protection of creditors
Par Value
Generally preferred stock is issued with a par value
common stock may be issued without a par value
any excess of par value is additional paid in capital
Common Stock
the basic ownership interest in a corporation
common shareholders may have preemptive rights to a proportionate share of any additional common stock issued if granted in the articles of incorporation
Book Value per Common Share
=common shareholders’ equity/ common shares outstanding
Common Stockholders’ Equity Formula
Total shareholders equity
(-) Preferred stock outstanding (at greater of call price or par value)
(-) Cumulative preferred dividends in arrears
Retained Earnings (Deficit)
Accumulated earnings (or losses) during the life of the corporation that have not been paid out as dividends.
Retained Earnings
= Net Income / Loss (-) Dividends (Cash, Property and Stock) declared
+(-) Prior period adjustments
+(-) Accounting changes reported retrospectively
Classification of RE (Appropriations)
Appropriated
Unappropriated
Dr RE(unappropriated)
Cr RE appropriated for purposes
AOCI
PUFI
Treasury Stock
a corporations own stock that has been issued to shareholders and subsequently reacquired but not retired
A portion of retained earnings equal to the cost of treasury stock may be restricted and may not be used as a basis for the declaration or payment of dividends
Methods of Accounting for Treasury Stock
- cost method
- legal ( or par/state value) method
Primary difference between the two methods is the timing of the recognition of “G/L” on treasury stock transactions
Cost Method - Treasury Stock
- Recorded and carried at their reacquisition cost
- G/L - determined when TS is reissued or retired
- APIC - cr from gains and db to losses when TS is reissued at prices that differ from the reacquisition cost
Legal Method - Treasury Stock
- recorded by reducing the amounts of par value and APIC received at the time of the original sale.
- TS db at par value
APIC - Common Stock db for the pro rata share of the original Issue Price attributable to the reacquired shares - APIC is cr for G & db for losses when TS is repurchased at prices that differ from original selling price
Retirement of treasury stock
- price paid is excess of the par - excess is charged against either (a) PIC (b) RE
- Price paid is less than par value - diff cr to PIC
