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Intermediat e Accounting
Intermediat e Accounting
weygandt
warfield
INTERMEDIATE team for success
Intermediat
F I F T E E N T H E D I T I O N
Intermediat
ACCOUNTING
e e
Accounting
Accounting
Prepared by
Coby Harmon
Prepared by
University of California,
CobySanta
Harmon Prepared by
Barbara
Westmont
University College SantaCoby
of California,
Harmon
Barbara
15-1
University of California, Santa Barbara
Westmont College
PREVIEW OF CHAPTER 15
Intermediate Accounting
15th Edition
Kieso Weygandt Warfield
15-2
15 Stockholders’ Equity
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
15-3
The Corporate Form of Organization
15-4 LO 1
The Corporate Form of Organization
15-5 LO 1
WHAT’S YOUR
129 NORTH PRINCIPLE
ORANGE STREET
15-6 LO 1
The Corporate Form of Organization
15-7 LO 1
The Corporate Form of Organization
15-8 LO 1
15 Stockholders’ Equity
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
15-9
Corporate Capital
Common
CommonStock
Stock
Account
Account
Contributed
Contributed Additional
AdditionalPaid-in
Paid-in
Capital
Capital Capital
Capital
Account
Account
Preferred
PreferredStock
Stock
Account
Account
Two Primary
Sources of Retained
RetainedEarnings
Earnings
Account
Account
Equity Assets –
Liabilities =
Less:
Less:
Treasury Equity
TreasuryStock
Stock
Account
Account
15-10 LO 2
15 Stockholders’ Equity
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
15-11
Corporate Capital
Issuance of Stock
Shares authorized - Shares sold - Shares issued
Accounting problems:
1. Par value stock.
2. No-par stock.
15-12 LO 3
Corporate Capital
15-13 LO 3
Corporate Capital
Cash 4,500
15-14 LO 3
Corporate Capital
No-Par Stock
Reasons for issuance:
Avoids contingent liability.
Avoids confusion over recording par value versus fair
market value.
15-15 LO 3
Corporate Capital
Cash 5,000
Common Stock 5,000
15-16 LO 3
Corporate Capital
Cash 15,000
Common Stock 5,000
Paid-in Capital in Excess of Stated Value 10,000
15-17 LO 3
Corporate Capital
2. Incremental method.
15-18 LO 3
Corporate Capital
Proportional
Method
15-19 LO 3
Corporate Capital
Prepare the
journal entry
to record
issuance of Proportional
shares. Method
Cash 13,500
Preferred Stock (100 x $50) 5,000
Paid-in Capital in Excess of Par – Preferred 3,100
Common Stock (300 x $10) 3,000
Paid-in Capital in Excess of Par – Common 2,400
15-20 LO 3
Corporate Capital
Incremental
Method
15-21 LO 3
Corporate Capital
Prepare the
journal entry
to record
issuance of
Incremental
shares.
Method
Cash 13,500
Preferred Stock (100 x $50) 5,000
Paid-in Capital in Excess of Par – Preferred 2,500
Common Stock (300 x $10) 3,000
Paid-in Capital in Excess of Par – Common 3,000
15-22 LO 3
Corporate Capital
15-23 LO 3
Corporate Capital
Patents 140,000
Common Stock 100,000
Paid-in Capital in Excess of Par - Common 40,000
15-24 LO 3
Corporate Capital
Patents 150,000
Common stock 100,000
Paid-in Capital in Excess of Par - Common 50,000
15-25 LO 3
Corporate Capital
Patents 125,000
Common stock 100,000
Paid-in Capital in Excess of Par - Common 25,000
15-26 LO 3
Corporate Capital
15-27 LO 3
WHAT’S YOUR RECEIVABLE
DISAPPEARING PRINCIPLE
15-28 LO 3
15 Stockholders’ Equity
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
15-29
Corporate Capital
Reacquisition of Stock
Corporations purchase their outstanding stock to:
Provide tax-efficient distributions of excess cash to
stockholders.
Increase earnings per share and return on equity.
Provide stock for employee stock compensation contracts
or to meet potential merger needs.
Thwart takeover attempts or to reduce the number of
stockholders.
Make a market in the stock.
15-30 LO 4
Corporate Capital
15-31 LO 4
Corporate Capital
15-32 LO 4
Corporate Capital
On January 20, Cripe acquires 10,000 of its shares at $11 per share.
Cripe records the reacquisition as follows.
Cash 110,000
15-33 LO 4
Corporate Capital
15-34 LO 4
Corporate Capital
15-35 LO 4
Corporate Capital
Cash 15,000
Treasury Stock 11,000
Paid-in Capital from Treasury Stock 4,000
15-36 LO 4
Corporate Capital
Cash 8,000
Paid-in Capital from Treasury Stock 3,000
Treasury Stock 11,000
15-37 LO 4
Corporate Capital
Illustration 15-6
Cash 8,000
Paid-in Capital from Treasury Stock 1,000
Retained Earnings 2,000
Treasury Stock 11,000
15-38 LO 4
Corporate Capital
15-39 LO 4
15 Stockholders’ Equity
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
15-40
Preferred Stock
5. Nonvoting.
15-41 LO 5
Preferred Stock
15-42 LO 5
Preferred Stock
Cash 120,000
Preferred stock 100,000
Paid-in Capital in Excess of Par - Preferred
20,000
15-43 LO 5
15 Stockholders’ Equity
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
15-44
Dividend Policy
15-45 LO 6
15 Stockholders’ Equity
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
15-46
Dividend Policy
Types of Dividends
1. Cash dividends. 3. Liquidating dividends.
2. Property dividends. 4. Stock dividends.
15-47 LO 7
Dividend Policy
Cash Dividends
Board of directors vote on the declaration of cash
dividends.
A declared cash dividend is a liability.
Companies do not
declare or pay cash Three
Three dates:
dates:
dividends on treasury a.
a. Date
Date of
of declaration
declaration
stock. b.
b. Date
Date of
of record
record
c.
c. Date
Date of
of payment
payment
15-48 LO 7
Dividend Policy
15-49 LO 7
Dividend Policy
Property Dividends
Dividends payable in assets other than cash.
Restate at fair value the property it will distribute, recognizing
any gain or loss.
15-50 LO 7
Dividend Policy
15-51 LO 7
Dividend Policy
15-52 LO 7
Dividend Policy
Liquidating Dividends
Any dividend not based on earnings reduces corporate
paid-in capital.
The portion of these dividends in excess of accumulated
income represents a return of part of the stockholder’s
investment.
15-53 LO 7
Dividend Policy
Date of declaration
Retained Earnings 900,000
Paid-in Capital in Excess of Par-Common 300,000
Dividends Payable 1,200,000
Date of payment
Dividends Payable 1,200,000
Cash 1,200,000
15-54 LO 7
15 Stockholders’ Equity
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
15-55
Dividend Policy
15-56 LO 8
Dividend Policy
Illustration: Koebele Corporation has outstanding 1,000 shares of
$100 par value common stock and retained earnings of $50,000. If
Koebele declares a 10 percent stock dividend, it issues 100
additional shares to current stockholders. If the fair value of the stock
at the time of the stock dividend is $130 per share, the entry is:
Date of declaration
Retained Earnings 13,000
Common Stock Dividend Distributable 10,000
Paid-in Capital in Excess of Par-Common 3,000
Date of distribution
Common Stock Dividend Distributable 10,000
Common Stock 10,000
15-57
LO 8
Dividend Policy
Stock Split
To reduce the market value of shares.
No entry recorded for a stock split.
Decrease par value and increase number of shares.
Illustration 15-10
15-58 LO 8
WHAT’S YOUR PRINCIPLE
SPLITSVILLE
15-59 LO 8
Dividend Policy
15-60 LO 8
Dividend Policy
15-61 LO 8
DIVIDENDS UP, DIVIDENDS DOWN
15-62 LO 8
Dividend Policy
15-63 LO 8
15 Stockholders’ Equity
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
15-64
Presentation and Analysis of Equity
15-65
LO 9
Presentation and Analysis of Equity
15-66 LO 9
Presentation and Analysis of Equity
Analysis
Analysts use stockholders’ equity ratios to evaluate a
company’s profitability and long-term solvency.
Three ratios:
1.Rate of return on common stock equity.
2.Payout ratio.
3.Book value per share.
15-67 LO 9
Analysis
Ratio shows how many dollars of net income the company earned
for each dollar invested by the owners.
15-68 LO 9
Analysis
Payout Ratio
Illustration: Midgley Co. has cash dividends of $100,000 and net
income of $500,000, and no preferred stock outstanding.
Illustration 15-16
Dividend Preferences
Illustration: In 2014, Mason Company is to distribute $50,000 as
cash dividends, its outstanding common stock have a par value of
$400,000, and its 6 percent preferred stock have a par value of
$100,000.
15-72 LO 10
DIVIDEND PREFERENCES AND BOOK VALUE
APPENDIX 15A PER SHARE
15-73 LO 10
DIVIDEND PREFERENCES AND BOOK VALUE
APPENDIX 15A PER SHARE
15-74 LO 10
DIVIDEND PREFERENCES AND BOOK VALUE
APPENDIX 15A PER SHARE
15-75 LO 10
DIVIDEND PREFERENCES AND BOOK VALUE
APPENDIX 15A PER SHARE
Assume that the same facts exist except that the 5 percent preferred
stock is cumulative, participating up to 8 percent, and that dividends
for three years before the current year are in arrears.
Illustration 15A-6
15-76 LO 10
RELEVANT FACTS - Similarities
The accounting for the issuance of shares and purchase of treasury
stock are similar under both IFRS and GAAP.
The accounting for declaration and payment of dividends and the
accounting for stock splits are similar under both IFRS and GAAP.
15-80 LO 11
IFRS SELF-TEST QUESTION
Under IFRS, the amount of capital received in excess of par value
would be credited to:
a. Retained Earnings.
b. Contributed Capital.
c. Share Premium.
d. Par value is not used under IFRS.
15-81 LO 11
IFRS SELF-TEST QUESTION
The term reserves is used under IFRS with reference to all of the
following except:
a. gains and losses on revaluation of property, plant, and
equipment.
b. capital received in excess of the par value of issued shares.
c. retained earnings.
d. fair value differences.
15-82 LO 11
IFRS SELF-TEST QUESTION
Under IFRS, a purchase by a company of its own shares results in:
a. an increase in treasury shares.
b. a decrease in assets.
c. a decrease in equity.
d. All of the above.
15-83 LO 11
Copyright
Copyright © 2013 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Copyright Act without the
express written permission of the copyright owner is unlawful.
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programs or from the use of the information contained herein.
15-84