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?The McGraw-Hill Companies, Inc., 1999 Slide 11-1 Irwin/McGraw-Hill Chapter 11 Stockholders?Equity: Paid-in Capital.

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Presentation on theme: "?The McGraw-Hill Companies, Inc., 1999 Slide 11-1 Irwin/McGraw-Hill Chapter 11 Stockholders?Equity: Paid-in Capital."— Presentation transcript:

1 ?The McGraw-Hill Companies, Inc., 1999 Slide 11-1 Irwin/McGraw-Hill Chapter 11 Stockholders?Equity: Paid-in Capital

2 ?The McGraw-Hill Companies, Inc., 1999 Slide 11-2 Irwin/McGraw-Hill Corporations Existence is separate from owners. An entity created by law. Has rights and privileges. Privately, or Closely, Held Publicly Held Ownership can be

3 ?The McGraw-Hill Companies, Inc., 1999 Slide 11-3 Irwin/McGraw-Hill Why Businesses Incorporate Stockholders have no personal liability. Privately, or Closely Held Publicly Held Transferability of ownership. Professional management. Continuity of existence.

4 ?The McGraw-Hill Companies, Inc., 1999 Slide 11-4 Irwin/McGraw-Hill l Disclose financial information. l Financial statements prepared in accordance with GAAP. l CPAs must audit the financial statements. l Must comply with federal securities laws. l Must submit financial information for SEC review. l Disclose financial information. l Financial statements prepared in accordance with GAAP. l CPAs must audit the financial statements. l Must comply with federal securities laws. l Must submit financial information for SEC review. Publicly Owned Corporations face Different Rules

5 ?The McGraw-Hill Companies, Inc., 1999 Slide 11-5 Irwin/McGraw-Hill Rights of Stockholders Stockholders Rights ¶Voting (in person or by proxy). ·Proportionate distribution of dividends. ¸Proportionate distribution of assets in a liquidation.

6 ?The McGraw-Hill Companies, Inc., 1999 Slide 11-6 Irwin/McGraw-Hill Rights of Stockholders Ultimate control Stockholders usually meet once a year.

7 ?The McGraw-Hill Companies, Inc., 1999 Slide 11-7 Irwin/McGraw-Hill Rights of Stockholders Stockholder ledgers are often maintained by a stock transfer agent or stock registrar.

8 ?The McGraw-Hill Companies, Inc., 1999 Slide 11-8 Irwin/McGraw-Hill Each unit of ownership is called a share of stock. A stock certificate serves as proof that a stockholder has purchased shares. Rights of Stockholders

9 ?The McGraw-Hill Companies, Inc., 1999 Slide 11-9 Irwin/McGraw-Hill When the stock is sold, the stockholder signs a transfer endorsement on the back of the stock certificate. Rights of Stockholders

10 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Functions of the Board of Directors Overall responsibility for managing the company. Selected by a vote of the stockholders

11 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Functions of the Corporate Officers Chief Accountant Contractual and legal representation Custodian of funds

12 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Authorization and Issuance of Capital Stock The maximum number of shares of capital stock that can be sold to the public. Authorized Shares

13 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Authorized Shares Issued shares are authorized shares of stock that have been sold. Unissued shares are authorized shares of stock that never have been sold. Usually shares are sold through an underwriter. Authorization and Issuance of Capital Stock

14 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Unissued Shares Treasury Shares Outstanding Shares Treasury shares are issued shares that have been reacquired by the corporation. Issued Shares Issued Shares Outstanding shares are issued shares that are owned by stockholders. Authorized Shares Authorization and Issuance of Capital Stock

15 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Paid-In Capital of a Corporation

16 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Par value is an arbitrary amount assigned to each share of stock when it is authorized. Market price is the amount that each share of stock will sell for in the market. Stockholders?Equity

17 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Common stock can be issued in three forms: No-Par Common Stock Par Value Common Stock Stated Value Common Stock Let 抯 examine this form of stock. Stockholders?Equity

18 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Issuance of Par Value Stock Prepare the journal entry to record an issuance of 10,000 shares of $2 par value stock for $25 per share which occurred on September 1, Record: The cash received. The number of shares issued ?the par value per share in the Common Stock account. The remainder is assigned to Contributed Capital in Excess of Par. Record: The cash received. The number of shares issued ?the par value per share in the Common Stock account. The remainder is assigned to Contributed Capital in Excess of Par.

19 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Issuance of Par Value Stock The journal entry to record an issuance of 10,000 shares of $2 par value stock for $25 per share on September 1, 1999 should include a credit to common stock for the par value of the shares issued.

20 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Issuance of Par Value Stock

21 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Common stock can be issued in three forms: No-Par Common Stock Par Value Common Stock Stated Value Common Stock Stockholders?Equity All proceeds credited to Common Stock Treated like par value common stock

22 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Preferred Stock A separate class of stock, typically having priority over common shares in... l Dividend distributions. l Distribution of assets in case of liquidation. A separate class of stock, typically having priority over common shares in... l Dividend distributions. l Distribution of assets in case of liquidation. Usually has a stated dividend rate. Normally has no voting rights. Usually callable by the company.

23 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Cumulative Preferred Stock Vs.NoncumulativeCumulative Dividends in arrears must be paid before dividends may be paid on common stock. Undeclared dividends from current and prior years do not have to be paid in future years.

24 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Stock Preferred as to Dividends Example: Consider the following partial Statement of Stockholders?Equity. During 1999, the directors declare cash dividends of $5,000. In year 2000, the directors declare cash dividends of $42,000.

25 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Stock Preferred as to Dividends

26 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Convertible Preferred Stock I just converted 100 shares of preferred stock into 1,000 shares of common stock and ended up with a higher dividend yield! Gee, I can’nt do that with my preferred stock. Some preferred stock is convertible into shares of common stock.

27 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Preferred Stock

28 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Stock Issued for Assets Other Than Cash Companies sometimes issue stock in exchange for non- cash assets. Record the transaction at the market value of the goods or services received.

29 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill I love this stuff! Can we do some more?

30 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Market Value Accounting by the issuer. Accounting by the invester. Common stock is carried at original issue price. Investments in marketable securities are carried at market value.

31 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Market Price of Preferred Stock Factors affecting market price of preferred stock: l Dividend rate l Risk l Level of interest rates Factors affecting market price of preferred stock: l Dividend rate l Risk l Level of interest rates The return based on the market value is called the 揹 ividend yield?

32 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Market Price of Common Stock Factors affecting market price of common stock: l Investors?expecta tions of future profitability. l Risk that this level of profitability will not be achieved. Factors affecting market price of common stock: l Investors?expecta tions of future profitability. l Risk that this level of profitability will not be achieved. Changes in market value have no impact on the books of the issuer.

33 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Stock Splits Companies use stock splits to reduce market price. Outstanding shares increase, but par value is decreased proportionately. Companies use stock splits to reduce market price. Outstanding shares increase, but par value is decreased proportionately. Ice Cream Parlor Banana Splits On Sale Now

34 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Stock Splits Example Assume that a corporation had 5,000 shares of $1 par value common stock outstanding before a 2 杅 or? stock split.

35 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Assume that a corporation had 5,000 shares of $1 par value common stock outstanding before a 2 杅 or? stock split. Increase Decrease No Change Stock Splits Example

36 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Unissued Shares Treasury Shares Outstanding Shares Treasury shares are issued shares that have been reacquired by the corporation. Issued Shares Issued Shares Authorized Shares Treasury Stock

37 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Treasury Stock No voting or dividend rights Contra equity account When stock is reacquired, the corporation records the treasury stock at cost.

38 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill On May 1, 1998 East Corp. reacquired 3,000 shares of its common stock at $55 per share. Prepare the journal entry for May 1. Treasury Stock Example

39 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill On May 1, 1998 East Corp. reacquired 3,000 shares of its common stock at $55 per share. Prepare the journal entry for May 1. Treasury Stock Example

40 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Treasury Stock Example On December 3, 1999 East Corp. reissued 1,000 shares of the stock at $75 per share. Prepare the journal entry for December 3.

41 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill On December 3, 1999 East Corp. reissued 1,000 shares of the stock at $75 per share. Prepare the journal entry for December 3. 1,000 shares ?$75 = $75,000 1,000 shares ?$55 cost = $55,000 Treasury Stock Example

42 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill Stockholders?Equity Presentation

43 ?The McGraw-Hill Companies, Inc., 1999 Slide Irwin/McGraw-Hill End of Chapter 11 This is’nt what I meant when I asked for stock for my birthday!


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