ACCT 1201 Lecture Notes - Issued Shares, Retained Earnings, Dividend

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taupewhale876

26 Jun 2014

School

Northeastern University

Department

Accounting

Course

ACCT 1201

Professor

Ganesh Krishnamoorthy

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Document Summary

Advantages of a corporation: simple to become an owner, easy to transfer of ownership, limited liability. Corporations are separate legal entities, which can: own assets, incur liabilities, enter into contracts, sue and be sued. Issued shares: outstanding shares - issued shares that are owned by stockholders, treasure shares - issued shares that have been repurchased by the corporation, unissued shares. Common stock = issued shares x par value. Earnings per share (eps) = net income / average # of shares outstanding for the period. Employee compensation: salary, stock options (allows employees to purchase stock from corporation at a. Capital in excess of par predetermined, fixed price) Dividends: declared by board of directors, creates liability at declaration, not legally required, requires sufficient retained earnings and cash. Date of record: stockholders holding shares on this date will receive the dividend, no entry required. Dividend yield ratio = dividends per share/ market price per share.

Related Questions

The Directors of Brisbane Ltd (a listed company) have come toyour accounting firm to seek advice on how to account for theinvestments they have in the five (5) entities-- Canberra Ltd,Sydney Ltd, Melbourne Ltd, Adelaide Ltd and Perth Ltd. All sharesissued by each of the entities are ordinary shares with normalvoting rights. All key facts as known to the company are providedbelow:

Canberra Ltd

Brisbane Ltd owns 45% of the issued capital.

The remaining shares are owned by a diverse group of investorswho each hold a small parcel of shares, many of whom are unlikelyto attend meetings.

The current board of directors of Canberra Ltd has sevenmembers.

Six directors on the board of Canberra Ltd are appointed byBrisbane Ltd.

Sydney Ltd

Brisbane Ltd owns 90% of the issued capital.

The remaining shares are owned equally between twoshareholders.

Melbourne Ltd

Brisbane Ltd owns 40% of the issued capital.

Three institutional investors equally hold 50% of the issuedcapital. These shareholders regularly attend meetings and vote.

The remaining 10% of the issued capital are owned by ageographically diverse group of investors who each hold a smallparcel of shares, many of whom are unlikely to attend meetings.

Adelaide Ltd

Brisbane Ltd owns 35% of the issued capital.

Sydney Ltd owns 25% of the issued capital.

The remaining shares are owned by a small group of investors whoeach own 10% of the issued shares.

Brisbane Ltd and Sydney Ltd each have two appointees on theboard of directors which has five members.

Perth Ltd

Brisbane Ltd owns 25% of the issued capital.

The remaining shares are owned by three institutional investorswho each own 25% of the issued capital.

All investors have rights to the net assets of Perth Ltd. Theytake a keen interest in the running of the company and attend allmeetings.

The shareholders of Perth Ltd have a contractual agreementwhereby each investor cannot make any operating, investing orfinancing decisions without the expressed consent of the otherparties.

Given the information above, the directors of Brisbane Ltd wouldparticularly like to know:

the type of investment for each entity (i.e. you need to clearlyidentify the investor-investee relationship) including asummary of the identifying criteria and anapplication of this criterion;

the accounting method to be adopted for thistype of investment[1]; and

which entities, if any, would form part of the BrisbaneLtd Group.

[1] Note: You are not required to explain how to apply theaccounting method in detail, but rather simply identify (state) theaccounting method. You must cite the specific provisions includingparagraph from the relevant AASB using one of the following twoexamples for in-text referencing in your presentation slides: AASB102:11 or AASB 102 para. 11.

lilacwater-buffalo232

Select the best answer from the list below to completestatements that follow.

authorized shares treasury stock book value per share issuedshares retained earnings par value per share outstanding sharesadditional paid-in-capital market value per share stock split

11. The number of shares sold or distributed to stockholderare____________ .

12. An arbitrary amount that is stated on the face of the stockcertificate is ______________

. 13. The number of shares issued less the number of shares heldas treasury stock are ______________________________.

14. The maximum numbers of shares a company may issueare______________

. 15. Net income that has been earned by the corporation but notpaid out as dividends are ______________________________.

16. The amount received for each share of stock in excess of parvalue is . 17. Stock issued by the firm, but then repurchased andnot retired is ________________________.

18. Distribution of additional shares of stock and reduction ofthe par value of the stock is ______________________________.

19. The selling price of the stock as indicated by the mostrecent stock transaction is___________________________________.

20. Assuming no preferred stock exists, total stockholders'equity divided by the number of shares of common stock outstandingis equal to _________________________

sangriajellyfish22

The Byrd Company's Contributed Capital section of its January 1,2010 balance sheet is as follows:

Preferred Stock (6%, $50 par, 8000 shares authorized, 3,400 sharesissued and outstanding) $170,000

Common stock ($10 stated value, 30,000 shares authorized, 12,000shares issued and outstanding) $120,000

Preferred stock subscribed (800 shares subscribed at $54 per share)$40000

Additional paid-in-capital on preferred stock $12800

Additional paid-in capital on common stock $72000

$414,800

During 2010, the company entered into the followingtransactions:

Jan 4 Established a compensatory share option plan for its keyexecutives. The options vest after three-year service period. Theestimated fair value of the options expected to be exercised is$81000.

Mar. 5 Received the remaining $40 per share on the subscribedpreferred stock and issued the shares.

Apr 23 Sold 300 shares of preferred stock at $55 per share.

May 4 Received a subscription down payment of $6 per share on 1,000shares of common stock. The remaining $11 per share balance is duein 60 days.

June 7 Sold 600 shares of common stock at $17 per share.

July 2 Received the remaining balance on subscribed common stockand issued the shares.

Sept 21 Purchased building by paying $9000 cash and issuing 800shares of common stock and 450 shares of preferred stock. Commonand preferred stock are currently selling for $19 and $57 pershare, respectively.

Oct 12 Reacquired 900 shares of common stock at $19.50 per share.The company uses the cost method to account for treasurystock.

Nov 15 Issued for $32000 a combination of 700 shares of commonstock and 12% bonds with a face value of $20000. âThe common stockis currently selling for $18 per share. No market value exists forthe bonds.

Dec. 14 Reissued the 900 shares of treasury stock at $20.50 pershare.

Dec. 28 Distributed a $3 per share dividend to all outstandingpreferred stock and a $1.50 per share dividend to all common stockoutstanding on this date (debit Retained Earnings and credit Cashfor each dividend).

Dec. 31 Declared a two-for-one stock split on the common stock,reducing the stated value to $4 per share and increasing theauthorized shares to 60000.

Required:

1. Prepare journal entries to record the precedingtransactions.

2. Prepare the Contributed Capital section of Byrdâs December 31,2010 balance sheet.

burgundyhound424

ACCT 1201 Lecture Notes - Issued Shares, Retained Earnings, Dividend

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