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AcFn2012 Ch05 Corporation
AcFn2012 Ch05 Corporation
AcFn2012 Ch05 Corporation
Learning Objectives
After studying this chapter, you should be able to:
Shareholders
Illustration 5-1
Corporation organization
chart Chairman and
Board of
Directors
President and
Chief Executive
Officer
Treasurer Controller
Name of corporation
Shareholder’s name
Shares
Share Certificate
Signature of corporate
official
LO 1
Share Issue Considerations
Authorized Shares
Charter indicates the amount of shares that a
corporation is authorized to sell.
Number of authorized shares is often reported in the
equity section.
Illustration 11-5
Illustration 11-6
a) Cash 1,000
Share capital—ordinary (1,000 x Br1)
b) 1,000
Cash 5,000
Share capital—ordinary (1,000 x Br1)
Share premium—ordinary
1,000
4,000 LO 2 Record the issuance of ordinary shares.
Accounting for Share Transactions
Illustration 11-7
Cost is either the fair market value of the consideration given up, or
the fair market value of the consideration received, whichever is
more clearly determinable.
Both the number of shares issued (100,000), outstanding (96,000), and the
number of shares held as treasury (4,000) are disclosed.
20,000
176,000
Cash 120,000
Share capital - preference (10,000 x Br10)
Share premium – preference
100,000
20,000
Dividend Preferences
Right to receive dividends before ordinary shareholders.
Liquidation preference.
Static/fixed or variable
LO 4 Differentiate preference shares from ordinary shares.
Accounting for Preference Shares
Liquidation Preferences
Most preference shares have a preference on corporate
assets if the corporation fails.
Types of Dividends:
1. Cash 3. Shares
2. Property 4. Scrip
Dividends expressed:
Cash Dividends
For a corporation to pay a cash dividend, it must have:
2. Adequate cash.
50,000
Results in decrease in retained earnings and increase share capital and share premium.
Share Dividends
Reasons why corporations issue share dividends:
Shares issued
Ordinary share dividends distributable 50,000
Share capital-ordinary (50,000 x 10% x Br10) 50,000
Illustration 11-15
Statement Presentation Statement presentation
of ordinary shares
dividends distributable
Question
Which of the following statements about small share dividends is
true?
a. A debit to Share Dividends for the par value of the shares
issued should be made.
b. A small share dividend decreases total equity.
c. Market value per share should be assigned to the dividend
shares.
d. A small share dividend ordinarily will have no effect on
book value per share.
Illustration 11-20
2. Contractual restrictions.
3. Voluntary restrictions.
Before issuing the report for the year ended December 31, 2014, you discover a
Br50,000 error (net of tax) that caused the 2013 inventory to be overstated
(overstated inventory caused COGS to be lower and thus net income to be higher in
2013. Would this discovery have any impact on the reporting of the Retained
Earnings Statement for 2014?
Question
All but one of the following is reported in a retained
earnings statement. The exception is:
LO 7
The end of chapter 5 and the course!