Corporations: Paid-in Capital and the Balance Sheet Chapter 13
Objective 1 Identify the characteristics of a corporation
Characteristics <ul><li>Separate legal entity </li></ul><ul><li>Continuous life and transferability of ownership </li></ul...
Organizing a Corporation <ul><li>Incorporators obtain charter from the state </li></ul><ul><li>Charter authorizes corporat...
Organizing a Corporation <ul><li>Stockholders elect board of directors </li></ul><ul><li>Board  </li></ul><ul><ul><li>Sets...
Capital Stock <ul><li>Corporate ownership - evidenced by a stock certificate  </li></ul><ul><li>Total number of shares aut...
Stockholders’ Equity <ul><li>Two components: </li></ul><ul><ul><li>Paid-in capital </li></ul></ul><ul><ul><li>Retained ear...
Stockholders’ Equity <ul><li>Sole-proprietor </li></ul><ul><li>Corporation </li></ul>Owner, Capital Investments Net Income...
Stockholders’ Equity Issue stock Cash XXXX Common Stock XXXX CREDIT DEBIT REF DESCRIPTION DATE GENERAL JOURNAL
Stockholders’ Equity Close income summary Income Summary XXXX Retained Earnings XXXX CREDIT DEBIT REF DESCRIPTION DATE GEN...
Stockholders’ Rights <ul><li>Four basic rights </li></ul><ul><ul><li>Vote </li></ul></ul><ul><ul><li>Dividends </li></ul><...
Classes of Stock <ul><li>Common stock - most basic form of capital stock </li></ul><ul><li>Preferred stock - owners have c...
Classes of Stock <ul><li>Par value </li></ul><ul><li>No-par value </li></ul>
Objective 2 Record the issuance of stock
Issuing Stock Paid-in Capital Common Stock Par Paid-in Capital in Excess of Par Amount  received  over par Cash Amount rec...
Issuing Stock <ul><li>On June 2, Mustang Properties issued 1,000 shares of $1 par common stock for cash of $1 per share </...
E13-14 Jun 19  Cash  8,000 Common Stock 1,000 Paid-in Capital in Excess of    Par-common 7,000 CREDIT DEBIT REF DESCRIPTIO...
E13-14 Jun 19  Cash  8,000 Common Stock 1,000 Paid-in Capital in Excess of    Par-common 7,000 Jun 19  Cash  8,000 Common ...
E13-14 Jun 19  Cash  8,000 Common Stock 1,000 Paid-in Capital in Excess of    Par-common 7,000 Jun 19  Cash  8,000 Common ...
E13-14 Jul 3  Cash  15,000 Preferred Stock 15,000 CREDIT DEBIT REF DESCRIPTION DATE GENERAL JOURNAL
E13-14 Jul 11  Equipment  20,000 Common Stock 3,000 Paid-in Capital in Excess of Par – Common 17,000 CREDIT DEBIT REF DESC...
E13-14 (2)‏ Paid-in Capital 1,000 7,000 15,000 3,000 17,000 4,000 24,000 Total Paid-in Capital = $43,000 Preferred Stock P...
Objective 3 Prepare the stockholders’ equity section of a corporation balance sheet
E13-17 Aug 6 Cash 13,000 Common Stock 500 Paid in Capital in Excess of  Par, Common 12,500 12 Cash 20,000 Preferred Stock ...
E13-17 Aug 31 Income summary 40,000 Retained earnings 40,000 CREDIT DEBIT REF DESCRIPTION DATE GENERAL JOURNAL
E13-17 <ul><li>Stockholders’ Equity </li></ul><ul><li>Paid-in capital: </li></ul><ul><li>Preferred stock, $3, no-par, 100,...
Objective 4 Account for cash dividends
Dividend Dates <ul><li>Declaration date </li></ul><ul><li>Date of record </li></ul><ul><li>Payment date </li></ul>
Declaring and Paying Dividends S13-8 <ul><li>Preferred stock:  4% x $100,000 $4,000 </li></ul><ul><li>Common: $0.50 x 50,0...
Declaring and Paying Dividends S13-8 2009 Jan  4 Dividends payable 29,000 Cash 29,000 CREDIT DEBIT REF DESCRIPTION DATE GE...
Preferred:  Per Share Dividend <ul><li>Stated as percentage of par value or as  specified amount </li></ul><ul><li>How muc...
Preferred:  Per Share Dividend <ul><li>Stated as percentage of par value or as  specified amount </li></ul><ul><li>How muc...
Cumulative & Noncumulative Preferred Stock <ul><li>Cumulative preferred stock - accumulates dividends each year until the ...
S13-9 1.  Preferred stock is  cumulative  because it is not specifically designated as noncumulative 2.  Preferred dividen...
S13-9 3.  2006:  Dividends in arrears = $2,000 2007:  Dividends in arrears = $4,000 2008:  Preferred stockholders get $6,0...
E13-21 1.  Preferred stock is  cumulative  because it is not specifically designated as noncumulative  2.  Preferred divid...
E13-21 3.  2008: Preferred stockholders get: Dividends in arrears $6,000 Current year’s 16,000   Total to preferred stockh...
Objective 5 Use different stock values in decision making
Different Values of Stock <ul><li>Market value - current selling price </li></ul><ul><li>Book value - equity a stockholder...
Book Value per Share <ul><li>Book value common = </li></ul><ul><li>(Stockholders’ equity – Preferred Equity)‏ </li></ul><u...
E13-23 <ul><li>Book value per share on common: </li></ul><ul><li>Total stockholders’ equity $277,000 </li></ul><ul><li>Att...
E13-24 <ul><li>Book value per share on common: </li></ul><ul><li>Total stockholders’ equity $277,000 </li></ul><ul><li>Att...
Objective 6 Evaluate return on assets and return on stockholders’ equity
Rate of Return on Total Assets E13-25 Net Income + Interest Expense   Average Total Assets $18,000,000 + 2,400,000 ($326,0...
Rate of Return on Common Stockholders’ Equity - E13-25 <ul><li>Net Income – Preferred Dividends </li></ul><ul><li>Average ...
Objective 7 Account for the income tax of a corporation
Income Taxes Income   tax  expense  = Income before income tax (from income statement)‏ ×  Income tax rate Income   tax  p...
Income Taxes <ul><li>Deferred tax liability = difference between income tax expense and income tax payable for any one yea...
E13-26 (in millions)‏ Income Tax Expense (400 x 37.5%) 150 Income Tax Payable (344 x 37.5%) 129 Deferred Tax Liability 21 ...
E13-26 $  21   Deferred tax liability Long-term liabilities: $  129   Income tax payable Current liabilities: BALANCE SHEE...
End of Chapter 13
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Corporations Paid In Capital And Balance Sheet

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  • Even though proprietorships and partnerships are more numerous than corporations, corporations do more business and are larger.
  • Corporations Paid In Capital And Balance Sheet

    1. 1. Corporations: Paid-in Capital and the Balance Sheet Chapter 13
    2. 2. Objective 1 Identify the characteristics of a corporation
    3. 3. Characteristics <ul><li>Separate legal entity </li></ul><ul><li>Continuous life and transferability of ownership </li></ul><ul><li>No mutual agency </li></ul><ul><li>Limited liability of stockholders </li></ul><ul><li>Separation of ownership and management </li></ul><ul><li>Corporate taxation </li></ul><ul><li>Government regulation </li></ul>
    4. 4. Organizing a Corporation <ul><li>Incorporators obtain charter from the state </li></ul><ul><li>Charter authorizes corporation to </li></ul><ul><ul><li>Issue stock </li></ul></ul><ul><ul><li>Conduct business in accordance with state law and the corporation’s bylaws </li></ul></ul>
    5. 5. Organizing a Corporation <ul><li>Stockholders elect board of directors </li></ul><ul><li>Board </li></ul><ul><ul><li>Sets policy </li></ul></ul><ul><ul><li>Appoints officers </li></ul></ul><ul><ul><li>Elects a chairperson </li></ul></ul>
    6. 6. Capital Stock <ul><li>Corporate ownership - evidenced by a stock certificate </li></ul><ul><li>Total number of shares authorized is limited by charter </li></ul>
    7. 7. Stockholders’ Equity <ul><li>Two components: </li></ul><ul><ul><li>Paid-in capital </li></ul></ul><ul><ul><li>Retained earnings </li></ul></ul>
    8. 8. Stockholders’ Equity <ul><li>Sole-proprietor </li></ul><ul><li>Corporation </li></ul>Owner, Capital Investments Net Income Paid in Capital Investments Retained Earnings Net Income Withdrawals Dividends
    9. 9. Stockholders’ Equity Issue stock Cash XXXX Common Stock XXXX CREDIT DEBIT REF DESCRIPTION DATE GENERAL JOURNAL
    10. 10. Stockholders’ Equity Close income summary Income Summary XXXX Retained Earnings XXXX CREDIT DEBIT REF DESCRIPTION DATE GENERAL JOURNAL
    11. 11. Stockholders’ Rights <ul><li>Four basic rights </li></ul><ul><ul><li>Vote </li></ul></ul><ul><ul><li>Dividends </li></ul></ul><ul><ul><li>Liquidation </li></ul></ul><ul><ul><li>Preemption </li></ul></ul>
    12. 12. Classes of Stock <ul><li>Common stock - most basic form of capital stock </li></ul><ul><li>Preferred stock - owners have certain advantages over common stockholders </li></ul><ul><ul><li>Receive dividends before common </li></ul></ul><ul><ul><li>Upon liquidation, receive assets before common </li></ul></ul><ul><ul><li>Right to vote sometimes withheld </li></ul></ul>
    13. 13. Classes of Stock <ul><li>Par value </li></ul><ul><li>No-par value </li></ul>
    14. 14. Objective 2 Record the issuance of stock
    15. 15. Issuing Stock Paid-in Capital Common Stock Par Paid-in Capital in Excess of Par Amount received over par Cash Amount received
    16. 16. Issuing Stock <ul><li>On June 2, Mustang Properties issued 1,000 shares of $1 par common stock for cash of $1 per share </li></ul>Jun 2 Cash 1,000 Common Stock 1,000 (1,000 shares x $1)‏ CREDIT DEBIT REF DESCRIPTION DATE GENERAL JOURNAL
    17. 17. E13-14 Jun 19 Cash 8,000 Common Stock 1,000 Paid-in Capital in Excess of Par-common 7,000 CREDIT DEBIT REF DESCRIPTION DATE GENERAL JOURNAL
    18. 18. E13-14 Jun 19 Cash 8,000 Common Stock 1,000 Paid-in Capital in Excess of Par-common 7,000 Jun 19 Cash 8,000 Common Stock 1,000 Paid-in Capital in Excess of Stated-common 7,000 CREDIT DEBIT REF DESCRIPTION DATE GENERAL JOURNAL
    19. 19. E13-14 Jun 19 Cash 8,000 Common Stock 1,000 Paid-in Capital in Excess of Par-common 7,000 Jun 19 Cash 8,000 Common Stock 8,000 CREDIT DEBIT REF DESCRIPTION DATE GENERAL JOURNAL
    20. 20. E13-14 Jul 3 Cash 15,000 Preferred Stock 15,000 CREDIT DEBIT REF DESCRIPTION DATE GENERAL JOURNAL
    21. 21. E13-14 Jul 11 Equipment 20,000 Common Stock 3,000 Paid-in Capital in Excess of Par – Common 17,000 CREDIT DEBIT REF DESCRIPTION DATE GENERAL JOURNAL
    22. 22. E13-14 (2)‏ Paid-in Capital 1,000 7,000 15,000 3,000 17,000 4,000 24,000 Total Paid-in Capital = $43,000 Preferred Stock Paid-in Capital in Excess of Par, Common Common Stock
    23. 23. Objective 3 Prepare the stockholders’ equity section of a corporation balance sheet
    24. 24. E13-17 Aug 6 Cash 13,000 Common Stock 500 Paid in Capital in Excess of Par, Common 12,500 12 Cash 20,000 Preferred Stock 20,000 14 Land 26,000 Common Stock 1,000 Paid in Capital in Excess of Par, Common 25,000 CREDIT DEBIT REF DESCRIPTION DATE GENERAL JOURNAL
    25. 25. E13-17 Aug 31 Income summary 40,000 Retained earnings 40,000 CREDIT DEBIT REF DESCRIPTION DATE GENERAL JOURNAL
    26. 26. E13-17 <ul><li>Stockholders’ Equity </li></ul><ul><li>Paid-in capital: </li></ul><ul><li>Preferred stock, $3, no-par, 100,000 authorized, 300 issued………………. $20,000 </li></ul><ul><li>Common stock, $1 par, 500,000 authorized, 1,500 issued……………. 1,500 </li></ul><ul><li>Paid-in capital in excess of par common……………………………… 37,500 </li></ul><ul><li>Total paid-in capital…………………… $59,000 </li></ul><ul><li>Retained earnings………………………. 40,000 </li></ul><ul><li>Total stockholders’ equity…………… $99,000 </li></ul>
    27. 27. Objective 4 Account for cash dividends
    28. 28. Dividend Dates <ul><li>Declaration date </li></ul><ul><li>Date of record </li></ul><ul><li>Payment date </li></ul>
    29. 29. Declaring and Paying Dividends S13-8 <ul><li>Preferred stock: 4% x $100,000 $4,000 </li></ul><ul><li>Common: $0.50 x 50,000 25,000 </li></ul><ul><li>Total dividends $29,000 </li></ul>2008 Dec 15 Retained earnings 29,000 Dividends payable 29,000 CREDIT DEBIT REF DESCRIPTION DATE GENERAL JOURNAL
    30. 30. Declaring and Paying Dividends S13-8 2009 Jan 4 Dividends payable 29,000 Cash 29,000 CREDIT DEBIT REF DESCRIPTION DATE GENERAL JOURNAL
    31. 31. Preferred: Per Share Dividend <ul><li>Stated as percentage of par value or as specified amount </li></ul><ul><li>How much does one share of 3% preferred stock with a $50 par value receive when dividends are declared and paid? </li></ul>$1.50
    32. 32. Preferred: Per Share Dividend <ul><li>Stated as percentage of par value or as specified amount </li></ul><ul><li>How much does one share of $4 preferred stock with a $50 par value receives when dividends are declared and paid? </li></ul>$4
    33. 33. Cumulative & Noncumulative Preferred Stock <ul><li>Cumulative preferred stock - accumulates dividends each year until the dividends are paid </li></ul><ul><ul><li>Dividends in arrears - dividends passed or not paid </li></ul></ul><ul><ul><li>Dividends in arrears - not a liability </li></ul></ul><ul><li>Noncumulative preferred stock – dividends not paid do not accumulated from one year to the next </li></ul>
    34. 34. S13-9 1. Preferred stock is cumulative because it is not specifically designated as noncumulative 2. Preferred dividend per year: 5% x $10 x 4,000 = $2,000 2005: Preferred stockholders get $2,000 Common stockholders get the rest, $13,000
    35. 35. S13-9 3. 2006: Dividends in arrears = $2,000 2007: Dividends in arrears = $4,000 2008: Preferred stockholders get $6,000 (2 years in arrears and current year)‏ Common stockholders get the rest, $9,000
    36. 36. E13-21 1. Preferred stock is cumulative because it is not specifically designated as noncumulative 2. Preferred dividend per year: 8% x $10 x 20,000 = $16,000 2007: Preferred stockholders get $10,000 (Note: Dividends in arrears of $6,000)‏ Common stockholders get nothing
    37. 37. E13-21 3. 2008: Preferred stockholders get: Dividends in arrears $6,000 Current year’s 16,000 Total to preferred stockholders $22,000 Common stockholders get the rest, $28,000
    38. 38. Objective 5 Use different stock values in decision making
    39. 39. Different Values of Stock <ul><li>Market value - current selling price </li></ul><ul><li>Book value - equity a stockholder has in net assets of the corporation </li></ul>
    40. 40. Book Value per Share <ul><li>Book value common = </li></ul><ul><li>(Stockholders’ equity – Preferred Equity)‏ </li></ul><ul><li>÷ Number of shares outstanding </li></ul>
    41. 41. E13-23 <ul><li>Book value per share on common: </li></ul><ul><li>Total stockholders’ equity $277,000 </li></ul><ul><li>Attributable to preferred: </li></ul><ul><li>$50 par x 1,000 shares (50,000)‏ </li></ul><ul><li>Attributable to common $227,000 </li></ul><ul><li>Per share: </li></ul><ul><li>$227,000 / 5,000 = $45.40 </li></ul>
    42. 42. E13-24 <ul><li>Book value per share on common: </li></ul><ul><li>Total stockholders’ equity $277,000 </li></ul><ul><li>Attributable to preferred: </li></ul><ul><li>Dividends in arrears ($50,000 x 6% x 3 years) (9,000)‏ </li></ul><ul><li>$50 par x 1,000 shares (50,000)‏ </li></ul><ul><li>Attributable to common $218,000 </li></ul><ul><li>Per share: </li></ul><ul><li>$218,000 / 5,000 = $43.60 </li></ul>
    43. 43. Objective 6 Evaluate return on assets and return on stockholders’ equity
    44. 44. Rate of Return on Total Assets E13-25 Net Income + Interest Expense Average Total Assets $18,000,000 + 2,400,000 ($326,000,000 + 317,000,000) / 2 $20,400,000 $321,500,000 .063
    45. 45. Rate of Return on Common Stockholders’ Equity - E13-25 <ul><li>Net Income – Preferred Dividends </li></ul><ul><li>Average Common Stockholders’ Equity </li></ul><ul><li>$18,000,000 – ($2x 100,000)‏ </li></ul><ul><li>($184,000,000 + $176,000,000) / 2 </li></ul><ul><li>$17,800,000 </li></ul><ul><li>$180,000,000 </li></ul><ul><li>.099 </li></ul>
    46. 46. Objective 7 Account for the income tax of a corporation
    47. 47. Income Taxes Income tax expense = Income before income tax (from income statement)‏ × Income tax rate Income tax payable = Taxable income (from the tax return filed with IRS)‏ × Income tax rate
    48. 48. Income Taxes <ul><li>Deferred tax liability = difference between income tax expense and income tax payable for any one year </li></ul>
    49. 49. E13-26 (in millions)‏ Income Tax Expense (400 x 37.5%) 150 Income Tax Payable (344 x 37.5%) 129 Deferred Tax Liability 21 CREDIT DEBIT REF DESCRIPTION DATE GENERAL JOURNAL
    50. 50. E13-26 $ 21 Deferred tax liability Long-term liabilities: $ 129 Income tax payable Current liabilities: BALANCE SHEET: $ 250 Net income 150 Income tax expense $400 Income before income tax INCOME STATEMENT:
    51. 51. End of Chapter 13

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