Chapter 12 Corporations: Organization, Capital Stock Transactions, and Dividends Accounting, 21st Edition Warren Reeve Fess PowerPoint Presentation by Douglas Cloud Professor Emeritus of Accounting Pepperdine University © Copyright 2004 South-Western, a division of Thomson Learning All rights reserved Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc Some Some of of the the action action has has been been automated, automated, so so click click the the mouse mouse when when you you see see this this lightning lightningbolt bolt in in the the lower lower right-hand right-hand corner corner of of the the screen screen You You can can point point and and click click anywhere anywhere on on the the screen screen Objectives Objectives Describe the nature of the corporate form of After After studying studying this this organization you chapter, you should should List the twochapter, main sources of stockholders’ be be able able to: to: equity List the major sources of paid-in capital, including the various classes of stock Journalize the entries for issuing stock Journalize the entries for treasury stock transactions Objectives Objectives State the effect of stock splits on corporate financial statements Journalize the entries for cash dividends and stock dividends Describe and illustrate the reporting of stockholders’ equity Compute and interpret the dividend yield on common stock Organizational Organizational Structure Structure of of aa Corporation Corporation Stockholders (owners of corporation stock) Board of Directors (elected by stockholders) Officers (selected by board of directors) Employees Forming Forming aa Corporation Corporation  First step is to file an application of incorporation with the state  Because state laws differ, corporations often organize in states with more favorable laws  More than half of the largest companies are incorporated in Delaware  State grants a charter or articles of incorporation which formally create the corporation  Management and board of directors prepare bylaws which are operation rules and procedures Forming Forming aa Corporation Corporation On On January January 5, 5, the the firm firm paid paid the the organization organization costs costs of of $8,500 $8,500 This This amount amount includes includes legal legal fees, fees, taxes taxes and and licenses, licenses, promotion promotion costs, costs, etc etc Jan Organization Costs Cash Paid cost of organizing the corporation 500 00 500 00 Stockholders’ Stockholders’ Equity Equity Assets Liabilities Stockholders’ Stockholders’ Equity Equity Stockholders’ Equity = Assets – Liabilities Represents the stockholders’ share of the total assets Stockholders’ Stockholders’ Equity Equity Liabilities There are There Assets are two two sources sources Stockholders’ Stockholders’ of stockholders’ of stockholders’ Equity Equity equity equity Stockholders’ Stockholders’ Equity Equity Assets Liabilities Stockholders’ Stockholders’ Equity Equity Stockholders’ Equity: Paid-in capital: Common stock $xxxxx Retained earnings xxxx Total $xxxxx Stockholder investments Accounting for Cash Dividends The The second second important important date date isis the the date date of of record record For For Hiber Hiber Corporation Corporation this this would would be be December December 11 11 Accounting for Cash Dividends On On this this date, date, ownership ownership of of shares shares determines determines who who receives receives the the dividend dividend No No entry entry isis required required Accounting for Cash Dividends The The third third important important date date isis the the date date of of payment payment On On January January2, 2, Hiber Hiber issues issues dividend dividend checks checks Accounting for Cash Dividends Date Date of of Payment Payment Jan Cash Dividends Payable Cash Paid cash dividends 42 500 00 42 500 00 Accounting for Stock Dividends A A distribution distribution of of dividends dividends to to stockholders stockholders in in the the form form of of the the firm’s firm’s own own shares shares isis called called aa stock stock dividend dividend Accounting for Stock Dividends Stock Stock dividends dividends transfer transfer pro pro rata rata shares shares of of stock stock to to stockholders stockholders Assume Assume Hendrix Hendrix Corporation Corporation issues issues aa 5% 5% stock stock dividend dividend on on common common stock, stock, $20 $20 par, par, 2,000,000 2,000,000 shares shares issued issued Accounting for Stock Dividends Hendrix Corporation, December 15 (before dividend) Common Stock, $20 par $40,000,000 Paid-in Capital in Excess of Par Common Stock 9,000,000 Retained Earnings 26,600,000 Dec 15 Stock Dividends Stock Dividends Distributable 3,100 000 00 2,000000 00 Paid-in Capital in Excess of Par—Common Stock Declared stock dividend 1,100000 00 Accounting for Stock Dividends On January 10, Hendix Corporation issues the stock This action increases the number of shares outstanding by 100,000 Jan 10 Stock Dividends Distributable Common Stock Issued stocks for the stock dividend 2,000 000 00 2,000000 00 Accounting for Stock Dividends Hendrix Corporation, December 15 (before dividend) Common Stock, $20 par $40,000,000 Paid-in Capital in Excess of Par Common Stock 9,000,000 Retained Earnings 26,600,000 $75,600,000 Hendrix Corporation, January 10 (after dividend) Common Stock, $20 par Paid-in Capital in Excess of Par Common Stock Retained Earnings $42,000,000 10,100,000 23,500,000 $75,600,000 Financial Financial Analysis Analysis and and Interpretation Interpretation Use: indicate Dividend Use: To ToYield indicate the the rate rate of of return return to tocommon common Dividend Yield stockholders stockholders in in terms terms of of dividends dividends 2004 Dividends per share of common Market price per share of common Dividend DividendYield Yield $ 0.80 $20.50 2003 $ 0.60 $13.50 Dividends per Share of Common Stock Market Price per Share of Common Stock $.60 Dividend DividendYield, Yield,2006 2006 $13.50 = 4.4% Dividend DividendYield, Yield,2007 2007 $.80 $20.50 = 3.9% There There are are two two ways ways to to report report stockholders’ stockholders’ equity equity in in the the balance balance sheet sheet In In Slide Slide 58, 58, each each class class of of stock stock isis listed listed first, first, followed followed by by its its related related paid-in paid-in capital capital accounts accounts 61 Stockholders’ Equity Paid-in capital: Preferred 10% stock, $50 par, cumulative (2,000 shares authorized and issued) $100,000 Excess of issue price over par 10,000 Common stock, $20 par (50,000 shares authorized, 45,000 issued) $900,000 Excess of issue price over par 190,000 From sale of treasury stock Total paid-in capital Retained earnings Total Deduct treasury stock (600 shares at cost) Total stockholders’ equity $ 110,000 1,090,000 2,000 $1,202,000 350,000 $1,552,000 27,000 $1,525,000 Slide Slide 60 60 shows shows the the second second method method Note Note that that the the stock stock accounts accounts are are listed listed first first The The other other paid-in paid-in capital capital accounts accounts are are listed listed as as aa single single item item described described as as Additional Additional paid-in paid-in capital capital Stockholders’ Equity Contributed capital: Preferred 10% stock, cumulative $50 par (2,000 shares authorized and issued) Common stock, $20 par (50,000 shares authorized, 45,000 issued) Additional paid-in capital Total contributed capital Retained earnings Total Deduct treasury stock (600 shares at cost) Total stockholders’ equity $100,000 900,000 202,000 $1,202,000 350,000 $1,552,000 27,000 $1,525,000 Chapter 12 The The End End ... value of of $12 $12 in in exchange exchange for for the the land land Nov 12 Land 120 000 00 Common Stock Paid-in Capital in Excess of Par Issued $10 par common stock valued at $12 per share,... for for dividends dividends Issuing Issuing Stock Stock at at aa Premium Premium On On Nov Nov 12, 12, aa corporation corporation acquired acquired land land for for which which the the fair fair... the corporate form of After After studying studying this this organization you chapter, you should should List the twochapter, main sources of stockholders’ be be able able to: to: equity List the