ACC 311 Chapter Notes - Chapter 11: Financial Statement, Retained Earnings, Preferred Stock

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viridianraven17

16 Feb 2017

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A voice in management: ability to vote at annual stockholders" meeting. Residual claim: receive a proportional share of distribution of remaining assets upon liquidation of company. Authorized number of shares: the maximum number of shares of stock a corporation can issue as specified in its charter. Issued shares: the total number of shares of stock that have been sold. A corporation"s own stock that has been repurchased. Shares held as treasury stock are considered issues shares but not outstanding shares. Outstanding shares: the total number of shares of stock that are owned by stockholders on any particular date. Earnings per share = net income / weighted average of common shares outstanding. Eps is a measure of performance over a prior period, while stock price is an indication of performance over future periods. Legal capital: the permanent amount of capital defined by state law that must remain invested in the business; serves as a cushion for creditors.

Related Questions

1. 11-4 Reporting the Stockholders' Equity Section of the BalanceSheet [LO2, LO3, LO4]

Shelby Corporation was organized in January 2010 by 10 stockholdersto operate an air conditioning sales and service business. Thecharter issued by the state authorized the following capitalstock:

Common stock, $1 par value, 200,000 shares.

Preferred stock, $8 par value, 6 percent, 50,000 shares.

During January and February 2010, the following stock transactionswere completed:

a.	Collected $40,000 cash from each of the 10 organizers and issued2,000 shares of common stock to each of them.
b.	Issued 15,000 shares of preferred stock at $25 per share; collectedin cash.

Net income for 2010 was $40,000; cash dividends declared and paidat year-end were $10,000.

Required:

Prepare the stockholders' equity section of the balance sheet atDecember 31, 2010. (Omit the "$" sign in your response.)

Stockholders' Equity%u2014December 31, 2010
Contributed capital:
Preferred stock	$
Additional paid-incapital, preferred stock
Common stock
Additional paid-incapital, common stock

Totalcontributed capital
Retained earnings

Total stockholders'equity	$

E11-1Computing Shares Outstanding [LO1]

The 2008 annual report for Fortune Brands, the seller of Pinnaclegolf balls and MasterLock padlocks,disclosed that 750 millionshares of common stock have been authorized. At the end of 2007,235 million shares had been issued and the number of shares intreasury stock was 81 million. During 2008, 1 million common shareswere reissued from treasury, and 5 million common shares werepurchased for treasury stock.

Required:

(a)	Determine the number of common shares issued at the end of 2008.(Enter your answer in millions.)

Issued stock

(b)	Determine the number of common shares in treasury at the end of2008. (Enter your answer in millions.)

Treasury stock

(c)	Determine the number of common shares outstanding at the end of2008. (Enter your answer in millions.)

Shares outstanding

erinfly733

The stockholders' meeting for Percival Corporation has been in progress for some time. The chief financial officer for Percival is presently reviewing the company's financial statements and is explaining the items that comprise the stockholders' equity section of the balance sheet for the current year. The stockholders' equity section of Percival Corporation at December 31, 2017, is as follows.

Percival Corporation

Balance Sheet (partial)

December 31, 2017

Paid in Capital

Capital Stock

Preferred stock, authorized 1,000,000 shares

Cumulative, $100 par value, $8 per share, 6000

Shares issued and outstanding $600,000

Common stock, authorized 5,000,000 shares, $1 par

Value, 3,000,000 shares, issued and 2,700,000 outstanding 3,000,000

Total Capital stock 3,600,000

Additional paid in capital

In excess of par- preferred stock $50,000

In excess of par- common stock 25,000,000

Total additional pain in capital 25,050,000

Total paid in capital 28,650,000

Retained Earnings 900,000

Total paid in capital and retained earnings 29,550,000

Less: Treasury Stock (300,000 common shares) 9,300,000

Total Stockholderâs equity $20,250,000

At the meeting, stockholders have raised a number of questions regarding the stockholders' equity section.

Instructions

With the class divided into groups, answer the following questions as if you were the chief financial officer for Percival Corporation.

(a) âWhat does the cumulative provision related to the preferred stock mean?â

Answer:

(b) âI thought the common stock was presently selling at $29.75, but the company has the stock stated at $1 per share. How can that be?â

Answer:

(c) âWhy is the company buying back its common stock? Furthermore, the treasury stock has a debit balance because it is subtracted from stockholders' equity. Why is treasury stock not reported as an asset if it has a debit balance?â

tansea-lion817

QUESTION 1

Probably the most basic right of a stockholder is the rightto:

	A.	receive an assured dividend each year.
	B.	serve as a director of the organization.
	C.	vote at stockholders' meetings.
	D.	receive at least his or her initial investment uponliquidation

The three significant cash dividend dates are the date ofdeclaration, date of record, and date of payment.

True

False

QUESTION 3

The price-earnings ratio is computed by dividing the currentmarket price per share of common stock by earnings per share.

True

False

The three significant cash dividend dates are (in order) thedates of:

	A.	declaration, distribution, and payment.
	B.	record, distribution, and payment.
	C.	declaration, record, and distribution.
	D.	declaration, record, and payment

The date of record follows the date of the declaration of adividend.

True

False

The amount of prior unpaid dividends is only important if thepreferred stock is:

	A.	noncumulative and convertible.
	B.	noncumulative and callable.
	C.	noncumulative.
	D.	cumulative

The number of outstanding shares of stock is the:

	A.	number authorized but not yet issued.
	B.	number issued to the original incorporates.
	C.	number issued and currently held by stockholders.
	D.	total number issued.

Treasury stock is stock that:

	A.	is apportioned to cover special projects such as theconstruction of a new building.
	B.	has never been issued.
	C.	has been issued but was reacquired by the corporation.
	D.	must be offered to existing stockholders first in amountsproportional to their shareholdings of the issuer's stock.

ACC 311 Chapter Notes - Chapter 11: Financial Statement, Retained Earnings, Preferred Stock

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