PRINCIPLES OF FIANNCIAL ACCOUNTING CHAPTER 11. Characteristics of a Corporation Separate Legal Existence Limited liability Ease of transfer of ownership.

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Presentation transcript:

PRINCIPLES OF FIANNCIAL ACCOUNTING CHAPTER 11

Characteristics of a Corporation Separate Legal Existence Limited liability Ease of transfer of ownership Ability to acquire capital Continuous life Broader management skills More government regulations Double taxation

Stock Authorized, issued, outstanding Treasury stock Par, no par, stated value stock Legal Capital Contributed capital Par value + Paid in capital in excess of par Earned capital Retained Earnings

Preferred Stock Preference to dividends Cumulative stock Liquidation preference

Cash dividends Date of declaration Entry required (DR) + Dividends or - RE; (CR) + Dividends Payable Date of Record Date of Payment Entry required (DR)- Dividends Payable, (CR) - Cash

Stock Dividends vs stock split Stock Dividends - An increase in paid-in capital and a decrease in retained earnings (use market value at the date of declaration) Stock split – Par value is reduced. It has no effect on paid-in capital or retained earnings.

Retained Earnings A debit balance (negative balance) is called a deficit. Restrictions on RE are called appropriations. The restrictions reduce the amount that is available for dividends.

Ratio analysis Cash Dividends declared on common stock / net income = Payout ratio Cash dividends declared per share/Stock Price at year-end = Dividend Yield

More ratios: Net income – Preferred stock dividends / average common shares outstanding = Earnings per share Stock Price per share / Earnings per share = Price-earnings ratio

Assignment E11-2 E11-4 E11-6 E11-8 BYP11-1 BYP11-11