1. BSAD 221 Introductory Financial Accounting Donna Gunn, CA

2. Shareholders (Owners of voting shares) Board of Directors Internal (managers) and External (non-managers) President Vice President (Production) Vice President (Marketing) Vice President (Finance) Vice President (Controller) Appointed by directors Elected by shareholders Ownership of a Corporation

3. Authorized Shares Unissued Shares Treasury Shares Outstanding Shares Issued Shares Treasury shares are issued shares that have been reacquired by the corporation. In Canada, reacquired shares are usually cancelled. Outstanding shares are issued shares that are owned by shareholders. Authorized, Issued, and Outstanding Shares

4. Common Shares Preferred Shares Types of Share Capital

5. Common Shares Basic Voting Shares Dividend set by Board of Directors Dividends paid AFTER preferred share dividends

6. Two primary sources of shareholders’ equity Retained earnings Share capital Accounting for Share Capital

7. Initial public offering (IPO) The first time a corporation sells shares to the public Sale and Issuance of Capital Shares Seasoned new issue Subsequent sales of new shares to the public.

8. Secondary Markets Transactions between two investors that do not affect the corporation’s accounting records. I’d like to sell some of my Sun Life shares. I’d like to buy some of your Sun Life shares.

9. Sale and Issuance of Shares On July 6, Sun Life issued 100,000 common shares for $22 per share. 100,000 shares × $22 per share = $2,200,000

10. 1.) Record assets or services received at the market value of the shares given up at the date of the transaction. Shares Issued for Non-cash Assets and/or Services 2.) If the market value of the shares cannot be determined, then the market value of the assets or services received should be used.

11. 10,000 shares × $15 = $150,000 Shares Issued for Non-cash Assets and/or Services On March 14, Sun Life issued 10,000 common shares to the Rose Law firm. The share was selling for $15.

12. Accounting for Cash Dividends Declared by board of directors Not legally required Creates liability at declaration Requires sufficient Retained Earnings and Cash $

13. Dividend Dates Declaration date  Board of directors declares the dividend.  Record a liability.

14. X Date of Record Shareholders holding shares on this date will receive the dividend. (No entry) Dividend Dates

15. Date of Payment Record the dividend payment to shareholders. Dividend Dates

16. Accounting for Stock Dividends Distribution of additional shares to shareholders. No change in total shareholders’ equity All shareholders retain the same percentage ownership Retained earnings decrease

17. Stock Splits Distributions of equal to 100% or more of outstanding shares to shareholders

18. Assume that a corporation had 5,000 shares outstanding with a book value of $5,000 before a 2– for–1 stock split. Increase Decrease No Change Stock Splits

19. Preference over common shares Usually has no voting rights Usually has a fixed dividend rate Preferred Shares

20. Convertible preferred shares may be exchanged for common shares. Callable (redeemable) preferred shares may be repurchased by the corporation at a predetermined price. Retractable preferred shares may be redeemed at the option of the shareholder for the redemption price. Special Features of Preferred Shares

21. Dividends on Preferred Shares 1. Current Dividend Preference: The current preferred dividends must be paid before paying any dividends to common shares. 2. Cumulative Dividend Preference: Any unpaid dividends from previous years (dividends in arrears) must be paid before common dividends are paid.

22. If the preferred shares are noncumulative, any dividends not declared in previous years are lost permanently. Dividends on Preferred Shares

23. Kites, Inc. has the following shares outstanding: Common shares: 100,000 shares Preferred shares: $3.00, cumulative, 5,000 shares Preferred shares: $4.00, noncumulative, 3,000 shares Dividends were not paid last year. In the current year, the board of directors declared dividends of $50,000. How much will each class of shares receive?

24. Dividends on Preferred Shares

25. Focus on Cash Flows