ARBUS 102 February 2

5 Pages
156 Views
Unlock Document

Department
Accounting & Financial Management
Course
AFM 333
Professor
Seth Brouwers
Semester
Winter

Description
February 2, 2011 CHAPTER 11: REPORTING AND INTERPRETING SHAREHOLDER’S EQUITY Advantages of Corporate Ownership  Main advantages: ease of raising large amounts of money - Simple to become an owner - Easy to transfer ownership - Provides limited liability Characteristics of Corporations:  Act of creation is costly  Pays taxes as a separate entity - Often at rates lower than individuals -  Not all are public companies - There are a long more private corporations in Canada than public corporations Components of Shareholders’ Equity:  Two sources of financing: - Equity o Contributed capital  Common shares  Additional paid in capital o Retained earnings  Reports cumulative amount of net income  Portion of the net income that has been reinvested in the business rather then paid out as dividends - Debt Benefits of Share Ownership:  Dividends  Residual claim  Voting rights Authorize, Issued and Outstanding  Authorized shares are the maximum number of shares of stock that can be sold to the public.  Authorized shares can be classified as either issued or unissued.  Issued shares are shares of stock that have been sold to the public at some point. - Issued shares can be classified as either outstanding shares or treasury shares. - Outstanding shares are shares that are currently owned by shareholders. - Treasury shares are shares that were once owned by shareholders but the corporation purchased the shares in the stock market. Now, the corporation is the owner of those shares.  Unissued shares are shares of stock that have never been sold to the public. Common Shares:  All corporations must have at lease on type of shares, called common shares - Basic voting shares issued by a corporation to shareholders - One of the uses of voting rights is elect Directors to the Board Types of Common Share Transaction  Issuance  Repurchase  Dividends - Cash - Stock  Stock Splits  Preferred Shares Common Share Transactions:  Repurchase of shares - A corporation repurchases it shares to: o Reduce the number of shares outstanding in the market o Send a signal that the company believes its stock is undervalued  why?? o Other reasons but not in Canada; the Canada Business Corporations Act (CBCA) requires that all repurchased shares be cancelled; as a result, treasury shares are rare in Canada - Calculate the book value of the outstanding shares at the time of purchase - Compare the book value to the price received to determine if there was a gain (contributed surplus) or a loss (retained earnings Cash Dividends on Common Shares  There is no legal obligation to declare a cash dividend, but once declared, there is a legal obligation to pay the dividend. Most corporations that pay cash dividends pay them quarterly.  Cash dividends are declared by the board of directors.  To pay a cash dividend, a corporation must have two things: - Sufficient retained earnings to absorb the dividend without going negative - Enough cash to pay the dividend. Stock Dividends:  A stock dividend is a distribution of additional shares of stock to shareholders.  All shareholders retain the same percentage ownership. The shareholders h
More Less

Related notes for AFM 333

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit