Accounting for Stock Activities

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The document discusses several topics related to corporate equity including: 1) Sections of the income statement such as continuing operations, discontinued operations, and extraordinary items. 2) Stock dividends which transfer equity from retained earnings to common stock without receiving payment. 3) An example journal entry to record a stock dividend. 4) Stock splits which issue additional shares to existing shareholders without changing total equity. 5) Repurchases of common stock which may retire shares or hold as treasury stock.

Business Economy & Finance

Income Statement Sections ,[object Object],[object Object],[object Object]

Stock Dividends ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Example ,[object Object],Retained Earnings 15,000 Common Shares Dividend Distributable 15,000 To record declaration of stock dividend of 1,000 common shares 10,000 shares * 10% = 1,000 shares 1,000 shares x $15 per share = $15,000

Example Continued ,[object Object], Common Shares Dividend Distributable 15,000 Common Shares 15,000 To record distribution of stock dividend of 1,000 common shares

Stock Splits ,[object Object],[object Object],[object Object],[object Object],[object Object]

Repurchase of Shares ,[object Object],[object Object],[object Object],[object Object]

Earnings Per Share ,[object Object],[object Object],[object Object],[object Object],[object Object],Basic earnings per share = (Net income - Preferred dividends) Weighted-average common shares outstanding

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2. Compare teh payment of cash divididends, stock dividends and purchase of treasury stock from existing shareholders. What are the similiarities and differences? If you were a corporate treasurer, which method would you recomend for returning funds to stock holders? Solution Dividends are payments made by a corporation to its shareholder members. [ It is the portion of corporate profits paid out to stockholders.[1] When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be distributed to shareholders. There are two ways to distribute cash to shareholders: share repurchases or dividends.[2][3] Many corporations retain a portion of their earnings and pay the remainder as a dividend. stock dividend A dividend paid as additional shares of stock rather than as cash. If dividends paid are in the form of cash, those dividends are taxable. When a company issues a stock dividend, rather than cash, there usually are not tax consequences until the shares are sold. Companies often buy back their own stock which lowers the number of shares outstanding. When a company does a stock buyback, the stocks they purchase on the open market become known as treasury stock. These stocks do not pay dividends nor do they have voting rights. Treasury stocks are not included in shares outstanding calculations. When a company buys back its own shares, it can either be advantageous to the shareholders or a detriment depending on the motivation for buying back the shares in the first place. If the company is seeking to boost its financial ratios such as their P/E ratio or earnings per share ratio, then the shareholders .

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