Student Learning Outcomes

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Camron Pearson
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comprehensive income and its components Understand the corporate form of organization and the nature of stock Record the issuance of shares when sold for cash and for

1 Chapter 18 Shareholders Equity Part 1: In General Intermediate Accounting II Dr. Chula King Student Learning Outcomes Describe the components of shareholders equity and explain how they are reported in a statement of shareholders equity Describe comprehensive income and its components Understand the corporate form of organization and the nature of stock Record the issuance of shares when sold for cash and for noncash Part 2 The Nature of Shareholders Equity Assets Liabilities = Shareholders Equity Sources of Shareholders Equity Amounts invested by shareholders Amounts earned dby the corporation Paid-in Capital Retained Earnings Accumulated other comprehensive income 1

Financial Reporting Overview Accumulated Other Comprehensive Income Total change in equity excluding transactions with owners such as dividends and the sale and repurchase of stock Net Income ±

2 Financial Reporting Overview Accumulated Other Comprehensive Income Total change in equity excluding transactions with owners such as dividends and the sale and repurchase of stock Net Income ± gains/losses not reported on income statement Net holding gains (losses) on investments Net unrecognized loss on pensions Gains (losses) from foreign currency translations Deferred gains (losses) from derivatives Accumulated Other Comprehensive Income Reported periodically as it is created and is also reported as a cumulative amount Options for reporting comprehensive income created during reporting period Additional section of income statement Separate statement immediately following income statement Accumulated comprehensive income reported as separate component of shareholders equity following retained earnings. 2

3 Corporate Form of Business Separate legal entity Advantages Easy to raise capital Easy transfer of ownership Limited liability Continuous existence Disadvantages Double taxation Government regulation Model Business Corporation Act Corporate Charter Nature and location of business activities Number and classes of authorized shares Composition of initial board of directors Articles of incorporation filed with state State issues corporate charter and shares of stock are issued Board of directors elected by shareholders Board of directors appoint officers Officers empower others to hire employees Fundamental Rights of Shareholders Right to vote Right to share in profits when dividends are declared Preemptive right to maintain i percentage ownership Right to share in distribution of assets if corporation is liquidated 3

4 Authorized, Issued, Outstanding Authorized shares maximum number of shares of capital stock that can be sold Issued shares authorized shares of stock that have been sold Outstanding issued shares that have not been repurchased by the corporation and held in the treasury Common and Preferred Stock Common basic voting stock of corporation Represents residual claim on assets in liquidation Dividends determined by board of directors Dividend distribution occurs after preferred stock agreements are satisfied Preferred stock generally nonvoting Priority over common stock in dividend distributions and liquidating asset distributions May be callable and/or convertible Capital Stock Par Value Dollar amount per share stated in corporate charter No relationship to market value Amount at which the stock is recorded No-Par Dollar amount per share not designated in corporate charter Corporations can assign stated value Amount at which the stock is recorded 4

5 Legal Capital In states that require par or stated value per share, that amount is also the legal capital Portion of shareholders equity that must be contributed to the firm when stock is issued Amount of capital required by state law that must remain invested in the business Refers to par value, stated value, or full amount paid for no-par stock. Preferred Stock Dividends Stated dividend expressed as percentage of par value Cumulative Noncumulative Participation Stock Issued for Cash Assume 10,000 shares of common stock are issued for $10 per share. Stock has $1 par value Cash 100, Common stock (10,000 x $1) 10,000 PIC in excess of par (10,000 x $9) 90,000 5

6 Stock Issued for Cash Stock is no par Cash 100,000 Common stock 100,000 Stock is no par with a stated value of $1 per share Cash 100,000 Common stock (10,000 x $1) 10,000 PIC in excess of stated value 90,000 Stock Issued for Noncash Consideration Fair value of stock given up or fair value of asset received, whichever is more clearly evident In the absence of market values, use appraised values More than One Security Issued for a Single Price Allocate lump sum received based on relative fair values of two securities If only one fair value is known, allocate a portion of the lump-sum received based on that fair value, and allocate the remainder to the other security 6

7 Stock Issue Costs Includes Registration fees Underwriter commissions Printing and clerical costs Legal and accounting fees Promotional costs Reduce the net proceeds from selling the shares, resulting in a lower amount of additional paid in capital Part 2 Share repurchase Retained earnings Dividends 7

Student Learning Outcomes

Chapter 18 Shareholders Equity Part 2: Additional Issues Intermediate Accounting II Dr. Chula King Student Learning Outcomes Distinguish between accounting for retired shares and for treasury shares Describe