3. 1. Overview of Corporation (General) 2. Cash and Property dividends 3. Stock dividends and Stock splits 4. Treasury Stock transactions 5. Stock rights and warrants 6. Financial Statement Presentation

4. Professor Vedd Board of directors appoint officers. Articles of incorporation are filed with the state. Board of directors elected by shareholders. Shares of stock issued. State issues a corporate charter. Corporate Charter Nature and location of business activities. Number and classes of shares authorized.

5. Professor Vedd 4 Right to vote. Right to share in distribution of assets if company is liquidated. Right to share in profits when dividends are declared. Preemptive right to maintain percentage ownership ( proportional interest)

6. Professor Vedd 5 Issued shares are authorized shares of stock that have been sold. Unissued shares are authorized shares of stock that have never been sold. Authorized Shares

7. Professor Vedd 6 Unissued Shares Treasury Shares Outstanding Shares Treasury shares are issued shares that have been reacquired by the corporation. Issued Shares Outstanding shares are issued shares that are owned by shareholders. Authorized Shares

8. Professor Vedd 7 Unissued Shares Retired Shares Outstanding Shares Retired shares assume the same status as authorized but unissued shares. Outstanding shares are issued shares that are owned by stockholders. Authorized Shares

9. Professor Vedd 8 Par value stock * Designated dollar amount per share stated in the corporate charter. * Par value has no relationship to market value. Par value stock * Designated dollar amount per share stated in the corporate charter. * Par value has no relationship to market value. No-par stock * Dollar amount per share not designated in corporate charter. * Corporations can assign a stated value per share (treated as if par value). No-par stock * Dollar amount per share not designated in corporate charter. * Corporations can assign a stated value per share (treated as if par value).

10. Professor Vedd Common stock is the basic voting stock of the corporation. It ranks after preferred stock for dividend and liquidation distribution. Dividends are determined by the board of directors. Dividend and liquidation preference over common stock. Generally does not have voting rights. Usually has a par or stated value. May be convertible, callable, and/or redeemable. Preferred Stock

11. Professor Vedd 10 Rights given up by preferred stockholders: 1. Voting rights (No) 2.Sharing in success- Cash dividends received by Preferred Stockholders are usually fixed in amount. E.g. Co issued 5,000 preferred shares of 7%, $100 par value (each $100 share pays a $7.00 dividends (100 x.07) Rights enjoyed by preferred stockholders: 1. Cash dividend preference- 2. Liquidation preference-

12. Professor Vedd Unpaid dividends must be paid in full before any distributions to common stock. Dividends in arrears are not liabilities, but the per share and aggregate amounts must be disclosed. Are usually stated as a percentage of the par or stated value. May be cumulative or noncumulative. May be partially participating, fully participating, or nonparticipating.

13. Professor Vedd 12 Callable issuing company to redeem the preferred stock. Redeemable holder to redeem The stock—usually with some restrictions. Convertible exchange preferred stock for common stock.

14. Professor Vedd 13 Shareholders’ Equity Paid-in Capital (Capital Stock) Retained Earnings Amounts earned by corporation Amounts invested by shareholders Accumulated Other Comprehensive Income Other gains and losses not included in comprehensive net income

15. Professor Vedd 14 Net holding gains (losses) on investments. Deferred gains (losses) from derivatives. Net unrecognized loss on pensions. Gains (losses) from foreign currency translations.

16. Professor Vedd 13-15 Balance Sheet Reporting The accumulated amount of comprehensive income is reflected in the Equity section of the balance sheet in two ways: Net income (less dividends) is cumulated in retained earnings. Other comprehensive income is cumulated in accumulated other comprehensive income.

17. Professor Vedd

18. * Issuing Stock for Noncash Assets Apply the general valuation principle by using fair value of stock given up or fair value of asset received, whichever is more clearly evident. If market values cannot be determined, use appraised values. Apply the general valuation principle by using fair value of stock given up or fair value of asset received, whichever is more clearly evident. If market values cannot be determined, use appraised values.

19. Professor Vedd * Share Issue Costs Share issue costs reduce net proceeds - resulting in a lower paid-in capital. Registration fees Underwriter commissions Printing and clerical costs Legal and accounting fees Promotional costs ABC Issued 100 shares $1 par at 1.50 with issue cost $10 Dr. Cash 140 (150-10) cr. C Stock 100 (100 x 1) cr. PIC –CS 40 {(100x.50)-10}

20. Professor Vedd 19 Property Dividends Dividends payable in assets other than cash. Restate at fair value the property it will distribute, recognizing any gain or loss. Property Dividends (2)

21. Professor Vedd 20 Types of Dividends Less than 20 - 25% shares More than 20 - 25% shares Use FMV at declaration Use FMV at declaration Use par value Use par value Small Dividend Large dividend Stock dividends result in more shares being issued as dividend (no assets are involved) Distribution of corporate earnings At FMV ARB 43: Transfer from RE/PIC

22. Professor Vedd Stock splits change the par value per share and the number of shares outstanding, but the total par value is unchanged, and no journal entry is required. Assume that a corporation had 3,000shares of $2 par value common stock outstanding before a 2–for–1 stock split. Increase Decrease No Change

23. Professor Vedd 22 1) Par value of a share does not change 2) Total number of shares increases 3) Total stockholders’ equity does not change 4) The composition of equity changes (less of retained earnings; more of stock) 5) Stock dividends require journal entries 1) Par value of a share decreases 2) Total number of shares increases 3) Total stockholders’ equity does not change 4) The composition of equity does not change (same amounts of stock and RE) 5) Stock splits do not require journal entries Stock DividendsStock Splits

24. Professor Vedd Matrix, Inc. declares and distributes a 2-for-1 stock split effected in the form of a 100% stock dividend. The company has 1,000,000, $1 par value common stock outstanding. The stock is trading in the open market for $14 per share. The per share par value of the shares is not to be changed. Paid-in capital – excess of par common ….1,000,000 Common stock ……………..……………… 1,000,000 Retained Earnings …................. 1,000,000 Common stock ……………..…………………1,000,000 To record declaration and distribution of 2-for-1 stock split effected in the form of a 100% stock dividend. or

25. Professor Vedd * Share Buybacks A corporation might reacquire shares of its stock to... support the market price. increase earnings per share. distribute in stock option plans. issue as a stock dividend. use in mergers and acquisitions. avoid takeover attempts. A corporation might reacquire shares of its stock to... support the market price. increase earnings per share. distribute in stock option plans. issue as a stock dividend. use in mergers and acquisitions. avoid takeover attempts.

26. Professor Vedd account for the reacquired shares by 1.Retiring 2. Treasury shares (to reissue). Shares reacquired & formally retired: -reduce the proportionate originally capital created - Any difference in PIC –repurchase

27. Professor Vedd 26 w Steps in treasury stock transactions: Initially, corporations issue stock from authorized stock Treasury stock: repurchase stock (from issued/outstanding) T/Stock may be retired or reissued Treasury Stock :CONTRA EQUITY ACCOUNT

28. Professor Vedd 27 Presentation and Analysis of Stockholders’ Equity

29. Professor Vedd * Overview of Corporation * Structure of shareholders’ equity * Type of stock * Issue of shares: cash/non-cash * Dividends: cash/stock/property * Retirement of stock * Repurchase of stock: Treasury stock * Presentation