1. Slide 11-1

2. Slide 11-2 Chapter 11 Corporations: Organization, Share Transactions, Dividends, and Retained Earnings Financial Accounting, IFRS Edition Weygandt Kimmel Kieso

3. Slide 11-3 1. 1.Identify the major characteristics of a corporation. 2. 2.Record the issuance of ordinary shares. 3. 3.Explain the accounting for treasury shares. 4. 4.Differentiate preference shares from ordinary shares. 5. 5.Prepare the entries for cash dividends and share dividends. 6. 6.Identify the items that are reported in a retained earnings statement. 7. 7.Prepare and analyze a comprehensive equity section. Study Objectives

4. Slide 11-4 Cash dividends Share dividends Share splits Corporate Organization and Share Transactions Corporate form of organization Ordinary share issues Treasury shares Preference shares Retained earnings restrictions Prior period adjustments Retained earnings statement DividendsDividends Retained Earnings Statement Presentation and Analysis Corporations: Organization, Share Transactions, Dividends, and Retained Earnings PresentationAnalysis

5. Slide 11-5 An entity separate and distinct from its owners. The Corporate Form of Organization Classified by Purpose Not-for-Profit For Profit Classified by Ownership Publicly held Privately held  Compass Group (GBR)  Hyundai Motors (KOR)  LUKOIL (RUS)  Google (USA)  Salvation Army (USA)  International Committee of the Red Cross (CHE)  Bill & Melinda Gates Foundation (USA)  Cargill Inc. (USA)

6. Slide 11-6 Separate Legal Existence Limited Liability of Shareholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Corporate Management Government Regulations Additional Taxes SO 1 Identify the major characteristics of a corporation. Advantages Disadvantages The Corporate Form of Organization Characteristics that distinguish corporations from proprietorships and partnerships.

7. Slide 11-7 Characteristics that distinguish corporations from proprietorships and partnerships. Characteristics of a Corporation SO 1 Identify the major characteristics of a corporation. Corporation acts under its own name rather than in the name of its shareholders. Separate Legal Existence Limited Liability of Shareholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Corporate Management Government Regulations Additional Taxes

8. Slide 11-8 Characteristics that distinguish corporations from proprietorships and partnerships. Characteristics of a Corporation SO 1 Identify the major characteristics of a corporation. Limited to their investment. Separate Legal Existence Limited Liability of Shareholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Corporate Management Government Regulations Additional Taxes

9. Slide 11-9 Characteristics that distinguish corporations from proprietorships and partnerships. Characteristics of a Corporation SO 1 Identify the major characteristics of a corporation. Shareholders may sell their share. Separate Legal Existence Limited Liability of Shareholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Corporate Management Government Regulations Additional Taxes

10. Slide 11-10 Characteristics that distinguish corporations from proprietorships and partnerships. Characteristics of a Corporation SO 1 Identify the major characteristics of a corporation. Corporation can obtain capital through the issuance of shares. Separate Legal Existence Limited Liability of Shareholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Corporate Management Government Regulations Additional Taxes

11. Slide 11-11 Characteristics that distinguish corporations from proprietorships and partnerships. Characteristics of a Corporation SO 1 Identify the major characteristics of a corporation. Continuance as a going concern is not affected by the withdrawal, death, or incapacity of a shareholder, employee, or officer. Separate Legal Existence Limited Liability of Shareholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Corporate Management Government Regulations Additional Taxes

12. Slide 11-12 Separate Legal Existence Limited Liability of Shareholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Corporate Management Government Regulations Additional Taxes Characteristics that distinguish corporations from proprietorships and partnerships. Characteristics of a Corporation SO 1 Identify the major characteristics of a corporation. Separation of ownership and management prevents owners from having an active role in managing the company.

13. Slide 11-13 Separate Legal Existence Limited Liability of Shareholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Corporate Management Government Regulations Additional Taxes Characteristics that distinguish corporations from proprietorships and partnerships. Characteristics of a Corporation SO 1 Identify the major characteristics of a corporation. Government regulations are designed to protect the owners of the corporation.

14. Slide 11-14 Separate Legal Existence Limited Liability of Shareholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Corporate Management Government Regulations Additional Taxes Characteristics that distinguish corporations from proprietorships and partnerships. Characteristics of a Corporation SO 1 Identify the major characteristics of a corporation. Corporations pay income taxes as a separate legal entity and in addition, shareholders pay taxes on cash dividends.

15. Slide 11-15 Characteristics of a Corporation SO 1 Identify the major characteristics of a corporation. Shareholders Chairman and Board of Directors President and Chief Executive Officer General Counsel and Secretary Vice President Marketing Vice President Finance/Chief Financial Officer Vice President Operations Vice President Human Resources TreasurerController Illustration 11-1 Corporation organization chart

16. Slide 11-16 Answer on notes page

17. Slide 11-17 File application with governmental agency in the jurisdiction in which incorporation is desired. Government grants charter. Corporation develops by-laws. Initial Steps: Forming a Corporation SO 1 Identify the major characteristics of a corporation. Companies incorporate in a state or country whose laws are favorable to the corporate form of business. Corporations expense organization costs as incurred.

18. Slide 11-18 1.Vote in election of board of directors and on actions that require shareholder approval. Shareholders have the right to: Ownership Rights of Shareholders SO 1 Identify the major characteristics of a corporation. 2.Share the corporate earnings through receipt of dividends. Illustration 11-3

19. Slide 11-19 3.Keep the same percentage ownership when new shares of share are issued (preemptive right * ). Shareholders have the right to: Ownership Rights of Shareholders SO 1 Identify the major characteristics of a corporation. * A number of companies have eliminated the preemptive right. Illustration 11-3

20. Slide 11-20 4.Share in assets upon liquidation in proportion to their holdings. This is called a residual claim. Shareholders have the right to: Ownership Rights of Shareholders SO 1 Identify the major characteristics of a corporation. Illustration 11-3

21. Slide 11-21 Ownership Rights of Shareholders SO 1 Identify the major characteristics of a corporation. Class A COMMON STOCK PAR VALUE $1 PER SHARE Share Certificate Name of corporation shareholder’s name Class Shares Signature of corporate official Prenumbered Illustration 11-4

22. Slide 11-22 Share Issue Considerations SO 1 Identify the major characteristics of a corporation. Charter indicates the amount of shares that a corporation is authorized to sell. Number of authorized shares is often reported in the equity section. Authorized Shares

23. Slide 11-23 Share Issue Considerations SO 1 Identify the major characteristics of a corporation. Corporation can issue shares directly to investors or indirectly through an investment banking firm. Factors in setting price for a new issue of shares: 1.the company’s anticipated future earnings 2.its expected dividend rate per share 3.its current financial position 4.the current state of the economy 5.the current state of the securities market Issuance of Shares

24. Slide 11-24 Share Issue Considerations SO 1 Identify the major characteristics of a corporation. Shares of publicly held companies are traded on organized exchanges. Interaction between buyers and sellers determines the prices per share. Prices set by the marketplace tend to follow the trend of a company’s earnings and dividends. Factors beyond a company’s control may cause day-to-day fluctuations in market prices. Market Value of Shares

25. Slide 11-25 SO 1 Identify the major characteristics of a corporation.

26. Slide 11-26 Share Issue Considerations SO 1 Identify the major characteristics of a corporation. Years ago, par value determined the legal capital per share that a company must retain in the business for the protection of corporate creditors. Today many governments do not require a par value. No-par value shares are quite common today. In many countries the board of directors assigns a stated value to no-par shares. Par and No-Par Value Shares

27. Slide 11-27 Corporate Capital SO 1 Identify the major characteristics of a corporation. Illustration 11-5

28. Slide 11-28 Corporate Capital Comparison of the equity accounts for a proprietorship and a corporation. Illustration 11-6 SO 1 Identify the major characteristics of a corporation.

29. Slide 11-29 At the end of its first year of operation, Doral Corporation has C750,000 of ordinary share and Answer on notes page net income of C122,000. Prepare (a) the closing entry for net income and (b) the equity section at year-end. Corporate Capital SO 1 Identify the major characteristics of a corporation. = =

30. Slide 11-30 Illustration: Illustration: Assume that Hydro-Slide, Inc. issues 2,000 shares of $1 par value ordinary shares. Prepare Hydro-Slide’s journal entry if (a) 1,000 shares are issued for $1 per share, and (b) 1,000 shares are issued for $5 per share. Cash1,000 Share capital - ordinary (1,000 x $1) 1,000 Cash5,000 Share capital - ordinary (1,000 x $1) 1,000 Share premium - ordinary 4,000 a. b. Issuing Par Value Ordinary Shares for Cash Accounting for Ordinary Share Issues SO 2 Record the issuance of ordinary shares.

31. Slide 11-31 Illustration 11-7 Accounting for Ordinary Share Issues SO 2 Record the issuance of ordinary shares.

32. Slide 11-32 Illustration: Illustration: Assume that Hydro-Slide, Inc. issues 5,000 shares of $5 stated value no-par shares for $8 per share. The entry is: Cash40,000 Share capital - ordinary (5,000 x $5) 25,000 Share premium - ordinary 15,000 Issuing No-Par Ordinary Shares for Cash Prepare the entry assuming there is no stated value. Cash40,000 Share capital - ordinary 40,000 Accounting for Ordinary Share Issues SO 2 Record the issuance of ordinary shares.

33. Slide 11-33 Issuing Ordinary Shares for Services or Noncash Assets Corporations also may issue shares for: Services (attorneys or consultants). Noncash assets (land, buildings, and equipment). Cost is either the fair market value of the consideration given up, or the fair market value of the consideration received, whichever is more clearly determinable. Accounting for Ordinary Share Issues SO 2 Record the issuance of ordinary shares.

34. Slide 11-34 Illustration: Assume that attorneys have helped Jordan Company incorporate. They have billed the company $5,000 for their services. They agree to accept 4,000 shares of $1 par value shares in payment of their bill. At the time of the exchange, there is no established market price for the shares. Prepare the journal entry for this transaction. Organizational expense5,000 Share capital - ordinary (4,000 x $1) 4,000 Share premium - ordinary 1,000 Accounting for Ordinary Share Issues SO 2 Record the issuance of ordinary shares.

35. Slide 11-35 Illustration: Assume that Athletic Research Inc. is an existing publicly held corporation. Its $5 par value shares are actively traded at $8 per share. The company issues 10,000 shares to acquire land recently advertised for sale at $90,000. Prepare the journal entry for this transaction. Land (10,000 x $8) 80,000 Share capital - ordinary (10,000 x $5) 50,000 Share premium - ordinary 30,000 Accounting for Ordinary Share Issues SO 2 Record the issuance of ordinary shares.

36. Slide 11-36 Treasury Shares - corporation’s own shares that it has reacquired from shareholders, but not retired. Corporations purchase their outstanding share to: 1.Reissue the shares to officers and employees under bonus and share compensation plans. 2.Enhance the share’s market value. 3.Have additional shares available for use in the acquisition of other companies. 4.Increase earnings per share. 5.Rid the company of disgruntled investors, perhaps to avoid a takeover. Accounting for Treasury Shares SO 3 Explain the accounting for treasury shares.

37. Slide 11-37 Purchase of Treasury Shares Debit Treasury Shares for the price paid to reacquire the shares. Treasury Shares is a contra equity account. Reduces equity. Accounting for Treasury Shares SO 3 Explain the accounting for treasury shares.

38. Slide 11-38 Treasury shares (4,000 x $8) 32,000 Cash 32,000 Illustration: On February 1, 2011, Mead acquires 4,000 shares of its share at $8 per share. Accounting for Treasury Shares SO 3 Explain the accounting for treasury shares. Illustration 11-8

39. Slide 11-39 Accounting for Treasury Shares SO 3 Explain the accounting for treasury shares. Equity Section with Treasury Shares Both the number of shares issued (100,000), outstanding (96,000), and the number of shares held as treasury (4,000) are disclosed. Illustration 11-9

40. Slide 11-40 Answer on notes page

41. Slide 11-41 Disposal of Treasury Shares Above Cost Below Cost Both increase total assets and equity. Accounting for Treasury Shares SO 3 Explain the accounting for treasury shares.

42. Slide 11-42 Treasury shares (1,000 x $8) 8,000 Illustration: On February 1, 2011, Mead acquired 4,000 of its share at $8 per share. On July 1, Mead sells for $10 per share 1,000 shares of its treasury share, previously acquired at $8 per share. Accounting for Treasury Shares SO 3 Explain the accounting for treasury shares. Above Cost July 1 Share premium - treasury 2,000 Cash 10,000 A corporation does not realize a gain or suffer a loss from share transactions with its own shareholders.

43. Slide 11-43 Share premium - treasury 800 Illustration: On February 1, 2011, Mead acquired 4,000 of its share at $8 per share. On Oct. 1, Mead sells an additional 800 treasury shares at $7 per share. Accounting for Treasury Shares SO 3 Explain the accounting for treasury shares. Oct. 1 Treasury shares (800 x $8) 6,400 Cash 5,600 Below Cost

44. Slide 11-44 Share premium - treasury 1,200 Illustration: On February 1, 2011, Mead acquired 4,000 of its share at $8 per share. On Dec. 1, assume that Mead, Inc. sells its remaining 2,200 shares at $7 per share. Accounting for Treasury Shares SO 3 Explain the accounting for treasury shares. Dec. 1 Retained earnings 1,000 Cash 15,400 Treasury shares (2,200 x $8) 17,600 Below Cost Limited to balance on hand

45. Slide 11-45 Typically, preference shareholders have a priority as to 1.distributions of earnings (dividends) and 2.assets in the event of liquidation. SO 4 Differentiate preference shares from ordinary shares. Preference Shares Accounting for preference shares at issuance is similar to that for ordinary shares.

46. Slide 11-46 Illustration: Stine Corporation issues 10,000 shares of $10 par value preference shares for $12 cash per share. Journalize the issuance of the preference share. Cash120,000 Share capital - preference (10,000 x $10) 100,000 Share premium – preference20,000 Preference shares may have a par value or no-par value. Preference Shares SO 4 Differentiate preference shares from ordinary shares.

47. Slide 11-47 Dividend Preferences Right to receive dividends before ordinary shareholders. Cumulative Dividend – preference shareholders must be paid both current-year dividends and any unpaid prior-year dividends before ordinary shareholders receive dividends. Liquidation preference. Preference Shares SO 4 Differentiate preference shares from ordinary shares.

48. Slide 11-48 A distribution of cash or shares to shareholders on a pro rata (proportional) basis. Types of Dividends: DividendsDividends SO 5 Prepare the entries for cash dividends and share dividends. 1.Cash dividends 2.Property dividends Dividends expressed: (1) as a percentage of the par or stated value, or (2) as a dollar amount per share. 3.Scrip (note) 4.Shares

49. Slide 11-49 Cash Dividends For a corporation to pay a cash dividend, it must have: 1.Retained earnings - Payment of cash dividends from retained earnings is legal in all jurisdictions. 2.Adequate cash. 3.A declaration of dividends by the Board of Directors. Cash Dividends SO 5 Prepare the entries for cash dividends and share dividends.

50. Slide 11-50 Dividends require information concerning three dates: SO 5 Prepare the entries for cash dividends and share dividends. Illustration 11-12 Cash Dividends

51. Slide 11-51 Illustration: On Dec. 1, the directors of Media General declare a 50¢ per share cash dividend on 100,000 shares of $10 par value common share. The dividend is payable on Jan. 20 to shareholders of record on Dec. 22? December 1 (Declaration Date) Cash dividends 50,000 Dividends payable 50,000 December 22 (Date of Record) January 20 (Payment Date) SO 5 Prepare the entries for cash dividends and share dividends. Dividends payable 50,000 Cash 50,000 No entry Cash Dividends

52. Slide 11-52 Allocating Cash Dividends Between Preference and Ordinary Shares SO 5 Prepare the entries for cash dividends and share dividends. Holders of cumulative preference shares must be paid any unpaid prior-year dividends before ordinary shareholders receive dividends. Cash Dividends

53. Slide 11-53 SO 5 Prepare the entries for cash dividends and share dividends. Illustration: On December 31, 2011, IBR Inc. has 1,000 shares of 8%, $100 par value cumulative preference share. It also has 50,000 shares of $10 par value ordinary shares outstanding. At December 31, 2011, the directors declare a $6,000 cash dividend. Prepare the entry to record the declaration of the dividend. Cash dividends 6,000 Dividends payable 6,000 Dividends: 1,000 shares x $100 par x 8% = $8,000 Cash Dividends

54. Slide 11-54 SO 5 Prepare the entries for cash dividends and share dividends. * 1,000 shares x $100 par x 8% = $8,000 * ** 2011 Pfd. dividends $8,000 – declared $6,000 = $2,000 ** Illustration: At December 31, 2012, IBR declares a $50,000 cash dividend. Show the allocation of dividends to each class of share. $ 50,000 2,000 8,000 $ 40,000 Cash Dividends

55. Slide 11-55 SO 5 Prepare the entries for cash dividends and share dividends. Cash dividends 50,000 Dividends payable 50,000 Illustration: At December 31, 2012, IBR declares a $50,000 cash dividend. Prepare the entry to record the declaration of the dividend. Cash Dividends

56. Slide 11-56 Answer on notes page

57. Slide 11-57 Share Dividends Pro rata distribution of the corporation’s own share. Share Dividends SO 5 Prepare the entries for cash dividends and share dividends. Results in decrease in retained earnings and increase share capital and share premium. Illustration 11-14

58. Slide 11-58 Share Dividends Reasons why corporations issue share dividends: 1. 1.To satisfy shareholders’ dividend expectations without spending cash. 2. 2.To increase the marketability of the corporation’s shares. 3. 3.To emphasize that a portion of shareholders’ equity has been permanently reinvested in the business. Share Dividends SO 5 Prepare the entries for cash dividends and share dividends.

59. Slide 11-59 Size of share Dividends Small share dividend (less than 20–25% of the corporation’s issued shares, recorded at fair market value) Large share dividend (greater than 20–25% of issued shares, recorded at par value) Share Dividends SO 5 Prepare the entries for cash dividends and share dividends. * This accounting is based on the assumption that a small share dividend will have little effect on the market price of the outstanding shares. *

60. Slide 11-60 10% share dividend is declared Share dividends(50,000 x 10% x $15)75,000 Ordinary share dividends distributable50,000 Share premium - ordinary 25,000 Shares issued Ordinary share dividends distributable50,000 Share capital - ordinary50,000 Illustration: Medland Corp. has 50,000 shares issued and outstanding. The par value is $10 per share and market value is $15 per share. Share Dividends SO 5 Prepare the entries for cash dividends and share dividends.

61. Slide 11-61 Statement Presentation Share Dividends SO 5 Prepare the entries for cash dividends and share dividends. Illustration 11-15

62. Slide 11-62 Share Dividends SO 5 Prepare the entries for cash dividends and share dividends. Effects of Share Dividends Illustration 11-16

63. Slide 11-63 Which of the following statements about small share dividends is true? a.A debit to Share Dividends for the par value of the shares issued should be made. b.A small share dividend decreases total shareholders’ equity. c.Market value per share should be assigned to the dividend shares. d.A small share dividend ordinarily will have no effect on book value per share of share. Question Share Dividends SO 5 Prepare the entries for cash dividends and share dividends.

64. Slide 11-64 Share Split Reduces the market value of shares. No entry recorded for a share split. Decrease par value and increase number of shares. Share Splits SO 5 Prepare the entries for cash dividends and share dividends.

65. Slide 11-65 Illustration: Assume Medland Corporation splits its 50,000 shares of common share on a 2-for-1 basis. SO 5 Prepare the entries for cash dividends and share dividends. Illustration 11-17 Results in a reduction of the par or stated value per share. Share Splits

66. Slide 11-66 Retained earnings is net income that a company retains for use in the business. Net income increases retained earnings and a net loss decreases retained earnings. Retained earnings is part of the shareholders’ claim on the total assets of the corporation. A debit balance in retained earnings is identified as a deficit. Retained Earnings SO 6 Identify the items that are reported in a retained earnings statement.

67. Slide 11-67 Restrictions can result from: 1. 1.Legal restrictions. 2. 2.Contractual restrictions. 3. 3.Voluntary restrictions. Retained Earnings Restrictions Illustration 11-22 SO 6 Identify the items that are reported in a retained earnings statement.

68. Slide 11-68 Corrections of Errors Result from:  mathematical mistakes  mistakes in application of accounting principles  oversight or misuse of facts Corrections treated as prior period adjustments Adjustment made to the beginning balance of retained earnings Prior Period Adjustments SO 6 Identify the items that are reported in a retained earnings statement.

69. Slide 11-69 Before issuing the report for the year ended December 31, 2011, you discover a $50,000 error (net of tax) that caused the 2010 inventory to be overstated (overstated inventory caused COGS to be lower and thus net income to be higher in 2010). Would this discovery have any impact on the reporting of the Statement of Retained Earnings for 2011? Prior Period Adjustments SO 6 Identify the items that are reported in a retained earnings statement.

70. Slide 11-70 Prior Period Adjustments SO 6 Identify the items that are reported in a retained earnings statement.

71. Slide 11-71 Retained Earnings Statement Transactions the Affect Retained Earnings Illustration 11-24 SO 6 Identify the items that are reported in a retained earnings statement.

72. Slide 11-72 Retained Earnings Statement Illustration 11-25 SO 6 Identify the items that are reported in a retained earnings statement.

73. Slide 11-73 All but one of the following is reported in a retained earnings statement. The exception is: a.cash and share dividends. b.net income and net loss. c.some disposals of treasury shares below cost. d.sales of treasury shares above cost. Question Retained Earnings Statement SO 6 Identify the items that are reported in a retained earnings statement.

74. Slide 11-74 Statement Presentation and Analysis Illustration 11-26 SO 7 Prepare and analyze a comprehensive equity section.

75. Slide 11-75 Analysis Net Income minus Preference Dividends Return on Ordinary Shareholders’ Equity = Average Ordinary Shareholders’ Equity Statement Analysis and Presentation This ratio shows how many dollars of net income the company earned for each dollar invested by the shareholders. SO 7 Prepare and analyze a comprehensive equity section.

76. Slide 11-76 Analysis Statement Analysis and Presentation Solution on notes page Illustration 11-28 SO 7 Prepare and analyze a comprehensive equity section.

77. Slide 11-77 As noted in the chapter, under IFRS the term “Reserves” is often used to describe equity accounts other than those arising from contributed capital. This most commonly includes comprehensive incomes (such as revaluation surplus and fair value differences) but is also sometimes used for retained earnings. GAAP has always discouraged the use of the term “Reserves” in any context. Under GAAP, comprehensive income items are reported in the equity section of the statement of financial position in a line labeled accumulated other comprehensive income. Understanding U.S. GAAP Key Differences Shares and Retained Earnings

78. Slide 11-78 As an example of how similar transactions use different terminology under GAAP, consider the accounting for the issuance of 1,000 shares of $1 par value ordinary shares for $5 per share. Under IFRS, the credit accounts would be Share Capital—Ordinary and Share Premium—Ordinary. Under GAAP, the entry is as follows. Cash 5,000 Common Stock 1,000 Paid-in Capital in Excess of Par 4,000 Understanding U.S. GAAP Key Differences Shares and Retained Earnings

79. Slide 11-79 A major difference between IFRS and GAAP relates to the account Revaluation Surplus. Revaluation Surplus arises under IFRS because companies are permitted to revalue their property, plant, and equipment to fair value under certain circumstances. This account is part of general reserves under IFRS and is not considered contributed capital. IFRS sometimes uses terms such as retained profits or accumulated profit or loss to describe retained earnings. The term retained earnings is also often used, as is the custom, under GAAP. Understanding U.S. GAAP Key Differences Shares and Retained Earnings

80. Slide 11-80 Looking to the Future Understanding U.S. GAAP The IASB and the FASB are currently working on a project related to financial statement presentation. An important part of this study is to determine whether certain line items, subtotals, and totals should be clearly defined and required to be displayed in the financial statements. For example, it is likely that the statement of shareholders’ equity and its presentation will be examined closely. It is interesting to note that, in a presentation of a proposed statement of financial position that was published as a result of this project, the term “Reserves,” which as noted is commonly used under IFRS, was replaced by the phrase “Accumulated other comprehensive income,” which is the title used under GAAP. Shares and Retained Earnings

81. Slide 11-81 Statement of Changes in Equity SO 8 Describe the use and content of the statement of changes in equity. Appendix 11A Illustration 11A-1 When a statement of changes in equity is presented, a retained earnings statement is not necessary.

82. Slide 11-82 Book Value—Another Per-Share Amount Appendix 11B Illustration 11B-1 The equity an ordinary shareholder has in the net assets of the corporation. Book Value per Share SO 9 Compute book value per share.

83. Slide 11-83 Book Value—Another Per-Share Amount Appendix 11B The computation of book value per share involves the following steps. 1.Compute the preference share equity. 2.Determine the ordinary shareholders’ equity. 3.Determine book value per share. Book Value per Share SO 9 Compute book value per share.

84. Slide 11-84 Book Value—Another Per-Share Amount Appendix 11B Illustration: Use the equity section of Graber Inc. shown in Illustration 11-26. Graber’s preference shares are callable at $120 per share and are cumulative. Assume that dividends on Graber’s preference shares were in arrears for one year, $54,000 (6,000 $9). The computation of preference share equity (Step 1 in the preceding list) is: Illustration 11B-2 SO 9 Compute book value per share.

85. Slide 11-85 Book Value—Another Per-Share Amount Computation of book value: Illustration 11B-2 Illustration 11B-3 SO 9 Compute book value per share.

86. Slide 11-86 Book Value—Another Per-Share Amount SO 9 Compute book value per share. Appendix 11B The correlation between book value and the annual range of a company’s market value per share is often remote. Book Value versus Market Value Illustration 11B-4

87. Slide 11-87 “Copyright © 2011 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.” CopyrightCopyright