Kế toán, kiểm toán - Chapter 11: Reporting and interpreting owners’ equity

Reporting and InterpretingOwners’ EquityChapter 11 Understanding The BusinessSimple to become an ownerEasy to transfer ownershipProvides limitedliabilityAdvantages of a corporationBecause a corporation is a separate legal entity, it can . . .Own assets.Sue and be sued.Incur liabilities.Enter into contracts.Appointedby directors Ownership of a CorporationCommon Stock TransactionsTwo primary sources of stockholders’ equityRetained earnings Contributed capitalCommon stock, par valueCapital in excess of par value Initial Sale of StockInitial public offering (IPO)Seasoned new issueThe first time a corporation sells stock to the public.Subsequent sales of new stock to the public.Krogerissues new stock.KrogerStock Issued for Employee CompensationEmployeeIf Kroger does not have new stock to issue when the stock options are exercised, then . . KrogerStock options allow employees to purchase stock from the corporation at a predetermined, fixed price. Employee compensation package includes salary and stock options.Repurchase of StockKroger buysits own stock in the secondary market. (Treasury stock)StockholdersKrogerRepurchased stock is called treasury stock. A corporation records treasury stock at cost. Treasury stock has no voting or dividend rights. Treasury stock is not an asset. It is a contra equity account.Dividends on Common StockDeclared by board of directors.Not legally required.Creates liability at declaration.Requires sufficient Retained Earnings and Cash.Declaration dateBoard of directors declares the dividend.Record a liability. Date of RecordStockholders holding shares on this date willreceive the dividend. (No entry) Dividend DatesDate of PaymentRecord the dividend payment to stockholders. Stock DividendsDistribution of additional shares of stock to owners.No change in total stockholders’ equity.All stockholders retain same percentage ownership.No change in par values.Stock dividend < 20-25%Record at current market value of stock.SmallStock splits change the par value per share,but the total par value is unchanged. Stock SplitsAssume that a corporation had 3,000shares of $2 par value common stockoutstanding before a 2–for–1 stock split.IncreaseDecreaseNo Change Preferred StockPreference over common stockUsually hasno voting rightsUsually has a fixed dividend rateCurrent Dividend Preference: The current preferred dividends must be paid before paying any dividends to common stock.Cumulative Dividend Preference: Any unpaid dividends from previous years (dividends in arrears) must be paid before common dividends are paid. Dividends on Preferred StockIf the preferred stock is noncumulative, any dividends not declared in previous years are lost permanently. A sole proprietorship isowned by a one person.Two equity accountsCapitalDrawingsChapter Supplement ─ Accounting for Owners’ Equity for Sole Proprietorships and Partnerships PartnershipsA partnership is owned bytwo or more individuals.Partnerships require clearagreements about authority, risks,and the sharing of profits and losses.Separate capital and drawingsaccounts are maintainedfor each partner.Partnership income is dividedamong the partners accordingto the partnership agreement.AdvantagesCompletecontrol bypartnersNo incometaxes onbusinessPrimarydisadvantageUnlimitedliabilityEase offormation Accounting and Reporting for Three Types of BusinessesEnd of Chapter 11