This document discusses accounting for owners' equity in different types of business organizations including corporations, sole proprietorships, and partnerships. It covers topics like authorized shares, issued shares, treasury shares, retained earnings, contributed capital, dividends, stock transactions, and equity accounts for sole proprietors and partnerships.
This document discusses the anatomy and procedures related to epidural steroid injections (ESI). It describes the structures in the epidural space, including fat, veins, arteries and lymph vessels. It outlines the general indications for ESI as herniated discs, spinal stenosis, back pain and post-surgery pain. It also discusses contraindications like bleeding risks. The document details different approaches for ESI, including cervical, lumbar and transforaminal, and describes administering medications like steroids for their anti-inflammatory effects.
The characters in Of Mice and Men use dreams as a way to cope with the loneliness and hopelessness of their lives on the ranch. George and Lennie share the central dream of owning a small farm together one day. When they tell Candy about their dream, he joins their vision, hoping it will give him purpose and security in his old age. Crooks and Curley's wife also have dreams - Crooks of being treated as an equal, and Curley's wife of becoming a movie star - that provide temporary escape from their difficult realities. However, the novel's title suggests these dreams are unlikely to be fulfilled, and the characters' circumstances seem to ensure their dreams will remain unrealized. Dreams
The document provides information about low backache, including:
1. The anatomy of the low back and intervertebral discs.
2. Epidemiology of back pain, which affects up to 80% of the population.
3. Classification and causes of low backache including psychogenic, viscerogenic, neurogenic, vascular, and spondylogenic causes.
Cancer pain is caused by tumors invading tissues and pressing on nerves. There are three types of pain: nociceptive, inflammatory, and neuropathic. Pain signals travel along nerve pathways from tissues to the spinal cord and brain. Cancer pain management involves detailed assessment, analgesic drugs like opioids, and non-pharmacological treatments. Radiation, chemotherapy, surgery, nerve blocks, and cement injections can help reduce tumor size and pressure causing pain. The goal is comprehensive treatment of physical and psychological distress from cancer.
Neck pain is common and can be caused by muscle strains, ligament sprains, arthritis, or pinched nerves. The majority of neck pain cases, regardless of the underlying cause, recover without treatment. Specific causes mentioned include cervical strain from everyday life or poor posture/sleeping habits, cervical spondylosis from wear and tear on tissues, and cervical discogenic pain from changes in the cervical discs. Treatment options mentioned are NSAIDs, heat/ice, massage, stretching, acupuncture, chiropractic, and yoga poses targeting the neck and shoulders. Surgery is usually not useful and other therapies should be tried first. Lifestyle changes like reducing stress, improving posture, and avoiding prolonged static positions can help
The document provides guidance on preparing for a job interview. It recommends researching the role and company in advance, planning your outfit the night before to ensure it is clean and ironed, and arriving early. During the interview, the document advises making eye contact, sitting up straight, listening carefully to questions, and answering confidently. Appropriate interview attire is also outlined, including suits, dress shirts or blouses, and closed-toe shoes for both men and women. Basic interpersonal skills like verbal and non-verbal communication and problem solving are also mentioned.
Oscillate Technical Institute is institute of all chip level motherboard Repairing Training Institute. One of the Best Training Institute in Thane , Mumbai, Navi Mumbai.
This document discusses the anatomy and procedures related to epidural steroid injections (ESI). It describes the structures in the epidural space, including fat, veins, arteries and lymph vessels. It outlines the general indications for ESI as herniated discs, spinal stenosis, back pain and post-surgery pain. It also discusses contraindications like bleeding risks. The document details different approaches for ESI, including cervical, lumbar and transforaminal, and describes administering medications like steroids for their anti-inflammatory effects.
The characters in Of Mice and Men use dreams as a way to cope with the loneliness and hopelessness of their lives on the ranch. George and Lennie share the central dream of owning a small farm together one day. When they tell Candy about their dream, he joins their vision, hoping it will give him purpose and security in his old age. Crooks and Curley's wife also have dreams - Crooks of being treated as an equal, and Curley's wife of becoming a movie star - that provide temporary escape from their difficult realities. However, the novel's title suggests these dreams are unlikely to be fulfilled, and the characters' circumstances seem to ensure their dreams will remain unrealized. Dreams
The document provides information about low backache, including:
1. The anatomy of the low back and intervertebral discs.
2. Epidemiology of back pain, which affects up to 80% of the population.
3. Classification and causes of low backache including psychogenic, viscerogenic, neurogenic, vascular, and spondylogenic causes.
Cancer pain is caused by tumors invading tissues and pressing on nerves. There are three types of pain: nociceptive, inflammatory, and neuropathic. Pain signals travel along nerve pathways from tissues to the spinal cord and brain. Cancer pain management involves detailed assessment, analgesic drugs like opioids, and non-pharmacological treatments. Radiation, chemotherapy, surgery, nerve blocks, and cement injections can help reduce tumor size and pressure causing pain. The goal is comprehensive treatment of physical and psychological distress from cancer.
Neck pain is common and can be caused by muscle strains, ligament sprains, arthritis, or pinched nerves. The majority of neck pain cases, regardless of the underlying cause, recover without treatment. Specific causes mentioned include cervical strain from everyday life or poor posture/sleeping habits, cervical spondylosis from wear and tear on tissues, and cervical discogenic pain from changes in the cervical discs. Treatment options mentioned are NSAIDs, heat/ice, massage, stretching, acupuncture, chiropractic, and yoga poses targeting the neck and shoulders. Surgery is usually not useful and other therapies should be tried first. Lifestyle changes like reducing stress, improving posture, and avoiding prolonged static positions can help
The document provides guidance on preparing for a job interview. It recommends researching the role and company in advance, planning your outfit the night before to ensure it is clean and ironed, and arriving early. During the interview, the document advises making eye contact, sitting up straight, listening carefully to questions, and answering confidently. Appropriate interview attire is also outlined, including suits, dress shirts or blouses, and closed-toe shoes for both men and women. Basic interpersonal skills like verbal and non-verbal communication and problem solving are also mentioned.
Oscillate Technical Institute is institute of all chip level motherboard Repairing Training Institute. One of the Best Training Institute in Thane , Mumbai, Navi Mumbai.
Rachael Corporation has $4,000 shares of common stock outstanding that is currently trading at $85 per share on the stock exchange. Its balance sheet shows stockholders' equity of $280,000 including $50,000 of preferred stock. The document provides information and calculations to determine: the market value of common stock; book value per share of common stock with and without preferred dividends in arrears; allocation of dividends between preferred and common shareholders; and reasons for issuing preferred stock over long-term debt.
This document summarizes key concepts around financial statement adjustments. It discusses the purpose of adjustments to match revenues and expenses to the correct accounting period. It provides examples of adjusting journal entries for unearned revenues, accrued revenues, prepaid expenses, accrued expenses, and deferred income taxes. Finally, it discusses how to prepare the adjusted trial balance and financial statements, including closing entries to reset revenue and expense accounts for the next period.
The document discusses key concepts related to operating activities and how they are recognized and reported on the income statement. Specifically, it covers:
- The operating cycle of purchasing inventory, selling products/services, collecting payment.
- Revenue is recognized when delivery occurs and payment is reasonably assured, while expenses match costs to revenues in the period incurred.
- The income statement reports revenues, expenses, gains and losses, while the statement of stockholders' equity and balance sheet are also impacted by operating activities.
PAKISTAN: General Elections 2013 Inquiry Commission ReportShahid Abbasi
Final and complete report of General Elections 2013 Inquiry Commission, the commission was setup after the accord between Pakistan Muslim League (PMN) and Pakistan Tehreek e Insaf (PTI).
The document provides an overview of the statement of cash flows, including:
- Key classifications of cash flows from operating, investing, and financing activities
- How the statement of cash flows is prepared using the indirect method by reconciling net income
- Important relationships between the statement of cash flows, balance sheet, and income statement
- Interpretation and analysis of cash flow information
(1.09)6 1 + g
Where:
FCFH+1 = Forecast FCF in year 7 = $6.8 million
g = Long-term growth rate = 3%
PVH = $67.6 million
Total value = PV(FCF) + PVH = $20.3 million + $67.6 million = $87.9 million
Therefore, the value of Rio Corporation is $87.9 million.
This document provides an overview of analyzing financial statements and key ratios. It discusses understanding the business, industry, and economic factors. It then covers various commonly used ratios to analyze a company's profitability, liquidity, solvency, and market performance including return on equity, return on assets, current ratio, quick ratio, inventory turnover, and price-to-earnings ratio. Sample calculations are shown for analyzing the 2009 financial statements of Home Depot using these different ratios.
The document discusses creating drama in gardens through the use of containers. It highlights Sheila Schultz's garden, which formerly was a basketball court but is now filled with dazzling containers holding succulents, as well as vertical gardening on the walls. The summary encourages the use of containers to transform outdoor spaces.
Designing with Heirlooms by Mary Ann NewcomerEva Montane
This document provides gardening tips and plant combinations using heirloom flowers and plants. It recommends trying lily of the valley with hellebores and allowing them to run rampant under trees. Various heirloom flowers and plants are mentioned such as bleeding heart, peony, pinks, poppies, foxglove, lily of the valley, viola, daisy, iris, morning glory and sweet peas. Tips include mass planting Centranthus rubra and using German bearded iris with blue geranium and baptisia. Combinations such as campanula glomerata with blue spruce and alchemilla mollis are also suggested.
Gardening in the interior west by Robert LittlepageEva Montane
To successfully garden in a particular region, it is important to understand your soil composition. The document discusses analyzing your soil using a soil texture triangle to determine your soil type is sandy loam. It emphasizes the importance of organizing your garden space before planting, including making a map of the property and a design brief to determine how you want to use different areas. By planning out the design first, your garden will be easier to maintain with good organization and use of local plants suited to the climate and soil conditions.
Bill Adams: Rock Gardening Plants from Near and FarEva Montane
This document discusses rock gardening and plants from different regions of the world for rock gardens. It mentions plants from Europe and Asia, South Africa, and North America and provides websites for The Eriogonum Society and information on rock gardening called SunScapes.
Goodwill refers to the value of a business beyond its identifiable net assets. It represents the future earning potential and intangible value that is associated with customer loyalty, brand recognition, and a skilled workforce. There are several methods for valuing goodwill, such as the average profit method, weighted average profit method, and capitalization of super profit method. Goodwill is an important intangible asset that must be considered when buying or selling a business.
Valuation of goodwill & shares with solution of problemsafukhan
The document discusses various methods for valuing goodwill, including:
1) Future Maintainable Profits Method - Which values goodwill based on the future profits a business is expected to maintain. It calculates average past profits over several years to estimate future profits.
2) Super Profits Method - Which values goodwill based on "super profits", the amount of profits earned above a business's normal rate of return on capital employed. Super profits are multiplied by the number of years of purchase to value goodwill.
3) Number of Years Purchase Method - Which values goodwill as the future maintainable profits multiplied by the number of years those profits are expected to continue into the future.
The document provides examples
Goodwill is the excess of the purchase price over the fair value of the net assets acquired. It is calculated as the purchase price minus the fair value of net assets. There are three main methods to value goodwill: the super profits method, capitalization method, and annuity method. The super profits method values goodwill as the super profits (profits above a normal rate of return) multiplied by the number of years of purchase. The capitalization method values goodwill as the normal capital employed minus the actual capital employed, divided by the normal rate of return. The annuity method values goodwill as the super profits multiplied by the annuity value of the number of years of purchase.
Pam Mantone of Decosimo presented on partnership accounting issues at the 19th Annual Decosimo Accounting Forum. [1] There is little authoritative guidance on partnership accounting. [2] Partnership agreements dictate the accounting basis and allocation methods. [3] Key issues discussed included income tax reporting, guaranteed payments, profit/loss allocations, and accounting for changes in partnership interests.
The document defines a partnership under Indian law as a relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The essential elements of a partnership are a contract between two or more persons to carry on business with the objective of sharing profits. There are two main kinds of partnerships - partnership at will which has an indefinite duration, and particular partnership which is formed for a fixed term or venture. A partnership can be dissolved by agreement between partners, by notice from a partner, or upon certain events such as the expiration of a fixed term, completion of an undertaking, death or insolvency of a partner.
1. A partnership is a business owned by two or more people who share ownership and responsibility.
2. Partnerships combine the capital, talent, and experience of the partners. They have advantages like pooling resources but partners have unlimited liability.
3. Accounting for partnerships involves recording contributions, allocating profits/losses, and accounting for drawings. Profits/losses can be allocated based on capital balances, services provided, or a pre-agreed fixed ratio.
The document describes Neev International, a company seeking to build mutually rewarding partnerships. It provides their website and discusses their vision of creating a space where people can bring ideas and help each other without expectation of monetary rewards. The company dreams of building a team to share visions and commitments. It commits to delivering value to clients by understanding their needs and delivering measurable benefits through proven solutions and methodologies.
Partnerships generally are associated with the practice of law, medicine, public accounting and other professions, and also with small business enterprises
Corporations are legal entities that allow for ownership shares to be traded publicly. They have a separate legal existence from owners and can raise large amounts of capital through stock sales. Ownership is represented by shares of stock. Corporations are controlled by shareholders who elect a board of directors to oversee management. They provide advantages like limited liability but are also subject to double taxation.
Corporations have several key characteristics including separate legal entity status, limited liability for shareholders, transferable ownership through share trading, and continuous life regardless of ownership changes. A corporation is formed through registration and establishes a board of directors elected by shareholders to oversee policy and delegate daily operations. Financial statements include an income statement, statement of retained earnings, and balance sheet that account for transactions involving shares, earnings, dividends and retained earnings.
Rachael Corporation has $4,000 shares of common stock outstanding that is currently trading at $85 per share on the stock exchange. Its balance sheet shows stockholders' equity of $280,000 including $50,000 of preferred stock. The document provides information and calculations to determine: the market value of common stock; book value per share of common stock with and without preferred dividends in arrears; allocation of dividends between preferred and common shareholders; and reasons for issuing preferred stock over long-term debt.
This document summarizes key concepts around financial statement adjustments. It discusses the purpose of adjustments to match revenues and expenses to the correct accounting period. It provides examples of adjusting journal entries for unearned revenues, accrued revenues, prepaid expenses, accrued expenses, and deferred income taxes. Finally, it discusses how to prepare the adjusted trial balance and financial statements, including closing entries to reset revenue and expense accounts for the next period.
The document discusses key concepts related to operating activities and how they are recognized and reported on the income statement. Specifically, it covers:
- The operating cycle of purchasing inventory, selling products/services, collecting payment.
- Revenue is recognized when delivery occurs and payment is reasonably assured, while expenses match costs to revenues in the period incurred.
- The income statement reports revenues, expenses, gains and losses, while the statement of stockholders' equity and balance sheet are also impacted by operating activities.
PAKISTAN: General Elections 2013 Inquiry Commission ReportShahid Abbasi
Final and complete report of General Elections 2013 Inquiry Commission, the commission was setup after the accord between Pakistan Muslim League (PMN) and Pakistan Tehreek e Insaf (PTI).
The document provides an overview of the statement of cash flows, including:
- Key classifications of cash flows from operating, investing, and financing activities
- How the statement of cash flows is prepared using the indirect method by reconciling net income
- Important relationships between the statement of cash flows, balance sheet, and income statement
- Interpretation and analysis of cash flow information
(1.09)6 1 + g
Where:
FCFH+1 = Forecast FCF in year 7 = $6.8 million
g = Long-term growth rate = 3%
PVH = $67.6 million
Total value = PV(FCF) + PVH = $20.3 million + $67.6 million = $87.9 million
Therefore, the value of Rio Corporation is $87.9 million.
This document provides an overview of analyzing financial statements and key ratios. It discusses understanding the business, industry, and economic factors. It then covers various commonly used ratios to analyze a company's profitability, liquidity, solvency, and market performance including return on equity, return on assets, current ratio, quick ratio, inventory turnover, and price-to-earnings ratio. Sample calculations are shown for analyzing the 2009 financial statements of Home Depot using these different ratios.
The document discusses creating drama in gardens through the use of containers. It highlights Sheila Schultz's garden, which formerly was a basketball court but is now filled with dazzling containers holding succulents, as well as vertical gardening on the walls. The summary encourages the use of containers to transform outdoor spaces.
Designing with Heirlooms by Mary Ann NewcomerEva Montane
This document provides gardening tips and plant combinations using heirloom flowers and plants. It recommends trying lily of the valley with hellebores and allowing them to run rampant under trees. Various heirloom flowers and plants are mentioned such as bleeding heart, peony, pinks, poppies, foxglove, lily of the valley, viola, daisy, iris, morning glory and sweet peas. Tips include mass planting Centranthus rubra and using German bearded iris with blue geranium and baptisia. Combinations such as campanula glomerata with blue spruce and alchemilla mollis are also suggested.
Gardening in the interior west by Robert LittlepageEva Montane
To successfully garden in a particular region, it is important to understand your soil composition. The document discusses analyzing your soil using a soil texture triangle to determine your soil type is sandy loam. It emphasizes the importance of organizing your garden space before planting, including making a map of the property and a design brief to determine how you want to use different areas. By planning out the design first, your garden will be easier to maintain with good organization and use of local plants suited to the climate and soil conditions.
Bill Adams: Rock Gardening Plants from Near and FarEva Montane
This document discusses rock gardening and plants from different regions of the world for rock gardens. It mentions plants from Europe and Asia, South Africa, and North America and provides websites for The Eriogonum Society and information on rock gardening called SunScapes.
Goodwill refers to the value of a business beyond its identifiable net assets. It represents the future earning potential and intangible value that is associated with customer loyalty, brand recognition, and a skilled workforce. There are several methods for valuing goodwill, such as the average profit method, weighted average profit method, and capitalization of super profit method. Goodwill is an important intangible asset that must be considered when buying or selling a business.
Valuation of goodwill & shares with solution of problemsafukhan
The document discusses various methods for valuing goodwill, including:
1) Future Maintainable Profits Method - Which values goodwill based on the future profits a business is expected to maintain. It calculates average past profits over several years to estimate future profits.
2) Super Profits Method - Which values goodwill based on "super profits", the amount of profits earned above a business's normal rate of return on capital employed. Super profits are multiplied by the number of years of purchase to value goodwill.
3) Number of Years Purchase Method - Which values goodwill as the future maintainable profits multiplied by the number of years those profits are expected to continue into the future.
The document provides examples
Goodwill is the excess of the purchase price over the fair value of the net assets acquired. It is calculated as the purchase price minus the fair value of net assets. There are three main methods to value goodwill: the super profits method, capitalization method, and annuity method. The super profits method values goodwill as the super profits (profits above a normal rate of return) multiplied by the number of years of purchase. The capitalization method values goodwill as the normal capital employed minus the actual capital employed, divided by the normal rate of return. The annuity method values goodwill as the super profits multiplied by the annuity value of the number of years of purchase.
Pam Mantone of Decosimo presented on partnership accounting issues at the 19th Annual Decosimo Accounting Forum. [1] There is little authoritative guidance on partnership accounting. [2] Partnership agreements dictate the accounting basis and allocation methods. [3] Key issues discussed included income tax reporting, guaranteed payments, profit/loss allocations, and accounting for changes in partnership interests.
The document defines a partnership under Indian law as a relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The essential elements of a partnership are a contract between two or more persons to carry on business with the objective of sharing profits. There are two main kinds of partnerships - partnership at will which has an indefinite duration, and particular partnership which is formed for a fixed term or venture. A partnership can be dissolved by agreement between partners, by notice from a partner, or upon certain events such as the expiration of a fixed term, completion of an undertaking, death or insolvency of a partner.
1. A partnership is a business owned by two or more people who share ownership and responsibility.
2. Partnerships combine the capital, talent, and experience of the partners. They have advantages like pooling resources but partners have unlimited liability.
3. Accounting for partnerships involves recording contributions, allocating profits/losses, and accounting for drawings. Profits/losses can be allocated based on capital balances, services provided, or a pre-agreed fixed ratio.
The document describes Neev International, a company seeking to build mutually rewarding partnerships. It provides their website and discusses their vision of creating a space where people can bring ideas and help each other without expectation of monetary rewards. The company dreams of building a team to share visions and commitments. It commits to delivering value to clients by understanding their needs and delivering measurable benefits through proven solutions and methodologies.
Partnerships generally are associated with the practice of law, medicine, public accounting and other professions, and also with small business enterprises
Corporations are legal entities that allow for ownership shares to be traded publicly. They have a separate legal existence from owners and can raise large amounts of capital through stock sales. Ownership is represented by shares of stock. Corporations are controlled by shareholders who elect a board of directors to oversee management. They provide advantages like limited liability but are also subject to double taxation.
Corporations have several key characteristics including separate legal entity status, limited liability for shareholders, transferable ownership through share trading, and continuous life regardless of ownership changes. A corporation is formed through registration and establishes a board of directors elected by shareholders to oversee policy and delegate daily operations. Financial statements include an income statement, statement of retained earnings, and balance sheet that account for transactions involving shares, earnings, dividends and retained earnings.
ch12 CORPORATIONS ORGANIZATION, STOCK TRANSACTIONS, DIVIDENDS, AND RETAINED E...JemalSeid25
This document provides an overview and learning objectives for a chapter on corporations from a financial accounting textbook. The chapter will cover the organization, stock transactions, dividends, and retained earnings of corporations. It will address topics like common vs preferred stock, accounting for stock issuances and dividends, and the preparation of stockholders' equity statements. The document includes sample journal entries, illustrations, and previews of the key sections to be covered in the chapter.
The document discusses different types of dividends and stock repurchases that companies use to return value to shareholders. It also discusses the irrelevance theory of dividends proposed by Modigliani and Miller that dividends do not impact a firm's value. The document also summarizes Lintner's model of stable dividend policies focused on long-term earnings and smoothening dividend changes.
FINANCIAL MANAGEMENT PPT BY FINMANDividend policy joseph agayatin&jezza deaunaMary Rose Habagat
This document discusses dividend policy and various types of dividends. It defines dividends as distributions to shareholders proportionate to share ownership. There are various types of dividends including cash, stock, and property dividends. The document outlines relevant dates for dividends including declaration, record, and payment dates. It also discusses the accounting entries related to dividends. Additionally, it covers dividend reinvestment plans, factors in determining dividend policy, and different approaches to dividend policy including constant payout ratio and regular dividend policies.
This document outlines various methods for valuing stocks and equity, including:
1) Balance sheet valuation methods like book value, liquidation value, and replacement cost.
2) Dividend discount models that value a stock based on the present value of expected future dividends.
3) Free cash flow models that value a company based on the present value of expected future free cash flows discounted at the weighted average cost of capital.
4) Earnings multiplier approaches that value stocks based on price-to-earnings or enterprise value-to-EBITDA multiples.
Corporate actions are events initiated by publicly listed companies that may affect share prices and shareholders. Common examples include dividend payments, share splits, rights issues, and bonus issues. Corporate actions are typically undertaken to return profits to shareholders, affect share prices, raise extra money, or increase profits through restructuring. Shareholders can find information about corporate actions by contacting the relevant share registry or ANZ Securities NZ Scrip Settlements. Dividends are the most common corporate action, where companies may pay dividends annually, semi-annually, or quarterly. Share splits and consolidations adjust the number of shares and price to make shares more or less affordable, while maintaining the same total market value. Rights issues and bonus issues allow
Financial accounting project of issue of sharesDeepali Mhatre
This document provides an overview of shares and debentures. It defines shares and share capital, and describes the different types of shares including equity shares, preference shares, and bonus shares. It also defines debentures and describes different types of debentures. Additionally, it explains various share capital terms like authorized share capital, issued capital, subscribed capital, called up capital, and paid up capital. Real life examples are provided to illustrate the concepts discussed.
This document outlines the key concepts from Chapter 13 of the textbook, which discusses partnerships and limited liability corporations. It begins with listing the chapter objectives and then defines the basic characteristics and equity reporting for proprietorships, corporations, partnerships, and LLCs. It also provides examples to illustrate accounting for forming a partnership, dividing partnership income, admitting or withdrawing partners, and liquidating a partnership.
In this presentation, we discuss share repurchases and everything you need to know about them. We also present some insightful quotes from the world's best investors on the proper implementation of share repurchases in real-world scenarios.
The document discusses dividend policy and its relationship to a firm's market value. It defines dividend policy as a board's decision on distributing residual earnings to shareholders. Different types of dividends are covered, including cash, stock, and liquidating dividends. The mechanics of declaring and paying cash dividends are explained. Modigliani and Miller's dividend irrelevance theorem and its assumptions are summarized, along with arguments for why dividends may matter in the real world due to factors like taxes, risk, and investor preferences.
goodwil for partnership notes pdf, ppt. Ben Phlixter
The document discusses accounting for goodwill when partnerships change. It provides examples of calculating goodwill when admitting a new partner, retiring an old partner, or changing profit sharing ratios. Goodwill is the difference between the price paid for a business and the fair value of its identifiable net assets. When partnerships change, goodwill must be recalculated and partners' capital accounts adjusted based on their share of goodwill under the new profit sharing ratios.
Prepare Vega Corporation's retained earnings statement for
the year ended December 31, 2017.
LO 3
14-39
Retained Earnings Statement
For the Year Ended December 31, 2017
Vega Corporation
Retained Earnings, January 1, 2017 $5,130,000
Add: Net Income for 2017 2,000,000
Total 7,130,000
Less: Dividends Declared and Paid 250,000
Retained Earnings, December 31, 2017 $6,880,000
LO 3
The document discusses various types of equity securities including common shares, preferred shares, and convertible securities. Common shares provide potential capital appreciation and dividends but come with more risk than preferred shares. Preferred shares entitle holders to fixed dividends that are paid out before common dividends but offer less upside potential. Convertible securities can be exchanged for common shares at a predetermined price and trade at the higher of their conversion value or pure investment value.
This document discusses accounting for dividends and retained earnings for corporations. It covers how to record cash and stock dividends, as well as stock splits. It also discusses preparing and analyzing the stockholders' equity section of the balance sheet, including the retained earnings statement. The learning objectives are to explain how to account for dividends and retained earnings, prepare the stockholders' equity section, and describe corporate income statements.
This chapter discusses long-term financing options for corporations including common stock, corporate long-term debt, and preferred stock. It notes that internally generated cash flows dominate as a source of financing for Canadian firms. When firms spend more than they generate internally, they finance the gap through new sales of debt and equity. However, net new equity issues are dwarfed by new sales of debt. The chapter outlines the key characteristics and tax implications of the different long-term financing instruments.
This document discusses key concepts related to corporations including dividends, retained earnings, and income reporting. It defines dividends as distributions to shareholders, outlines different types of dividends including cash and stock dividends. It also discusses retained earnings, how they are restricted, prior period adjustments, and how retained earnings statements are presented. The document also covers corporate income statements and how they report income tax, and defines and provides an example for calculating earnings per share.
The document describes the key characteristics of common stock and bonds. It discusses that common stock represents ownership in a company and provides voting and dividend rights to shareholders. It also explains the purpose of initial public offerings and how they work. The document also defines what a bond is, including its par value, coupon rate, and maturity value. It lists the different types of bonds like treasury bonds, municipal bonds, and corporate bonds as well as floating rate and inflation-linked bonds.
The document discusses capital structure and corporate finance, covering topics such as how much a corporation should borrow, the impact of corporate and personal taxes on capital structure decisions, and the costs of financial distress. It provides examples and analyses of capital structure considerations for companies and aims to help determine the optimal amount of debt a firm should take on given tradeoffs between tax benefits and financial distress costs.
This document discusses Modigliani and Miller's proposition that a firm's debt policy does not impact its value under certain assumptions. It presents the M&M proposition that a firm's expected return on equity equals its expected return on assets plus a premium based on financial leverage. Examples are provided to illustrate how leverage affects returns and risk. The document also discusses calculating a firm's weighted average cost of capital (WACC) and how the tax benefit of debt is incorporated into an after-tax WACC calculation.
This document provides an overview of payout policy, including dividends and stock repurchases. It discusses the different theories around whether dividend policy impacts firm value, including the views that it is irrelevant according to M&M theory, increases value according to the clientele and signaling effects, and decreases value due to tax considerations. It also outlines the different dividend payment processes and "Lintner's stylized facts" about manager preferences to smooth dividends and avoid cuts.
This document provides information for a financial accounting course taught through Southwestern College Professional Studies. It outlines the instructor, class schedule, course description and materials, as well as policies regarding attendance, withdrawals, incompletes, and academic integrity. The course will focus on basic accounting principles, financial statements, ratio analysis, and using financial information for decision making. Students will complete assignments, homework, and research article abstracts that will be evaluated for a letter grade.
The document provides information on classifying, measuring, recording, and reporting on long-lived assets including property, plant, and equipment, natural resources, and intangibles. It discusses the different depreciation methods including straight-line, units-of-production, and declining balance. The document also covers asset impairment, disposals of long-lived assets, and international differences between US GAAP and IFRS reporting standards.
This document provides an overview of analyzing financial statements and key ratios. It discusses understanding the business, industry, and economic factors. It then covers various commonly used ratios to analyze a company's profitability, liquidity, solvency, and market performance including return on equity, return on assets, current ratio, quick ratio, and price-to-earnings ratio. Sample calculations are shown for analyzing the financial statements of Home Depot using these different ratios.
This document discusses different types of investments in other corporations and the appropriate accounting methods for each. It covers passive investments in debt and equity securities, investments intended to exert significant influence or control over another company, and mergers and acquisitions that result in a controlling interest. The accounting depends on factors like ownership percentage and intent of the investment. Methods include amortized cost, fair value, equity, and purchase accounting resulting in goodwill for mergers.
- Bonds are used to finance a company's operations and are considered debt, while equity refers to funds from owners. There are advantages like tax deductibility of interest expense but also risks like bankruptcy if obligations cannot be met.
- Bonds have a principal amount, coupon/stated interest rate, and maturity date. They can be secured by assets or callable/convertible. An indenture contract specifies legal provisions.
- Bonds can be issued at par value, at a discount if below par, or at a premium if above par. Discounts/premiums are amortized over the bond term using straight-line or effective interest methods to calculate periodic interest expense.
This document provides an overview of liabilities, including their definition, classification, and key types. It discusses current and noncurrent liabilities, and covers accounts payable, payroll liabilities, notes payable, bonds, leases, and estimated liabilities. It also introduces concepts of present value and its applications in accounting. International differences in refinanced debt classification and borrowing in foreign currencies are highlighted.
The document discusses key concepts related to inventory costing and financial reporting. It covers the primary goals of inventory management, items included in inventory, costs included in inventory, and the flow of inventory costs. It then describes inventory costing methods like specific identification, FIFO, LIFO, and weighted average. It explains how these different methods can affect ending inventory valuations and cost of goods sold, and compares their impacts on financial statements and income taxes.
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The document provides an overview of financial statements and accounting. It discusses the key players in a business, the accounting system and financial statements. The four basic financial statements are the balance sheet, income statement, statement of retained earnings, and statement of cash flows. It also discusses accounting principles, auditing, business entities, careers in accounting and related topics.
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2. Understanding The Business Because a corporation is a separate legal entity , it can . . . Simple to become an owner Easy to transfer ownership Provides limited liability Advantages of a corporation Own assets. Sue and be sued. Incur liabilities. Enter into contracts.
3. Ownership of a Corporation Voting (in person or by proxy ). Proportionate distributions of profits (dividends). Proportionate distributions of assets in a liquidation. Rights Stockholders’
5. Authorized, Issued, and Outstanding Shares Authorized shares are the maximum number of shares of capital stock that can be sold to the public. Issued shares are authorized shares of stock that have been sold. Unissued shares are authorized shares of stock that never have been sold.
6. Authorized, Issued, and Outstanding Shares Unissued Shares Treasury Shares Outstanding Shares Treasury shares are issued shares that have been reacquired by the corporation. Outstanding shares are issued shares that are owned by stockholders.
7. Earnings Per Share (EPS) Kroger’s income for 2009 is $1,249,000,000 and the average number of shares outstanding is 652,000,000. Earnings per share is probably the single most widely watched financial ratio. *If there are preferred dividends, the amount is subtracted from net income. $1,249,000,000 652,000,000 Shares EPS = = $1.92 per share Net Income * Average Number of Shares Outstanding for the Period EPS =
9. Common Stock Transactions Two primary sources of stockholders’ equity Retained earnings Contributed capital Common stock, par value Capital in excess of par value
10. Common Stock Transactions Dividend set by board of directors Basic voting stock Ranks after preferred stock
11. Common Stock Transactions Legal capital is the amount of capital, required by the state, that must remain invested in the business. Par Value Nominal value Legal capital
12. Common Stock Transactions Par Value Market Value Some states do not require that a par value be stated in the charter. Some states do not require a par value to be stated in the charter.
13. Initial Sale of Stock Initial public offering (IPO) Seasoned new issue The first time a corporation sells stock to the public . Subsequent sales of new stock to the public. Kroger issues new stock. Kroger
14. Initial Sale of Stock Prepare the journal entry to record this transaction. On July 6, Kroger issued 100,000 shares of $1 par value common stock for $20 per share. 100,000 shares × $20 per share = $2,000,000 100,000 shares × $1 par value = $100,000
15.
16. Stock Issued for Employee Compensation Employee Stock options allow employees to purchase stock from the corporation at a predetermined, fixed price. Employee compensation package includes salary and stock options . If Kroger does not have new stock to issue when the stock options are exercised, then . . Kroger
17. Repurchase of Stock Kroger buys its own stock in the secondary market. (Treasury stock) Repurchased stock is called treasury stock. A corporation records treasury stock at cost . Treasury stock has no voting or dividend rights. Treasury stock is not an asset. It is a contra equity account. Stockholders Kroger
18. Repurchase of Stock On May 1, Kroger reacquired 100,000 shares of its common stock at $20 per share. The journal entry for May 1 is . . . .
19. Reissuance of Treasury Stock 10,000 shares × $30 = $300,000 10,000 shares × $20 cost = $200,000 On December 3, Kroger reissued 10,000 shares of the treasury stock at $30 per share. The journal entry for December 3 is . . .
20.
21.
22. Dividend Yield Ratio This ratio is often used to compare the dividend-paying performance of different investment alternatives. In 2009, Kroger paid a dividend of $0.36 per share and the market price of a share of Kroger stock was $22. Dividend Yield Dividends Per Share Market Price Per Share = Dividend Yield $0.36 per share $22 per share = = 1.6%
23. Stock Dividends Distribution of additional shares of stock to owners. No change in total stockholders’ equity. All stockholders retain same percentage ownership. No change in par values. Stock dividend < 20-25% Record at current market value of stock. Small
24. Stock Splits Stock splits change the par value per share, but the total par value is unchanged. Assume that a corporation had 3,000 shares of $2 par value common stock outstanding before a 2–for–1 stock split. Increase Decrease No Change
25. Preferred Stock Preference over common stock Usually has no voting rights Usually has a fixed dividend rate
30. Restrictions on the Payment of Dividends Why would you want to do that? If I loan you $150,000, I will want you to restrict your retained earnings.
32. Chapter Supplement ─ Accounting for Owners’ Equity for Sole Proprietorships and Partnerships A sole proprietorship is owned by a one person. Two equity accounts Capital Drawings
33. Sole Proprietorships On January 2, J. Doe started a retail store by investing $150,000 of his own money. The journal entry to record this business formation is: Each month, J. Doe withdraws $1,000 for personal living expenses. The January 30 journal entry to record the first withdrawal is:
34. Sole Proprietorships During the first year, J. Doe’s income totaled $18,000, and his withdrawals totaled $12,000. The equity section of J. Doe’s balance sheet at the end of the first year is:
35. Partnerships A partnership is owned by two or more individuals. Partnerships require clear agreements about authority, risks, and the sharing of profits and losses. Separate capital and drawings accounts are maintained for each partner. Partnership income is divided among the partners according to the partnership agreement. Complete control by partners No income taxes on business Unlimited liability Ease of formation Advantages Primary disadvantage
36.
37. Partnerships The partners agreed that each month Able would withdraw $1,000 and Baker would withdraw $650. The January 30 journal entry to record the first withdrawal is:
38. Partnerships During the first year, partnership income totaled $30,000. Withdrawals totaled $12,000 for Able and $7,800 for Baker. The equity section of the partnership balance sheet at the end of the first year is:
Chapter 11: Reporting and Interpreting Owners’ Equity
The corporate form of organization has several advantages. The major advantage is the ease of raising large amounts of money because both large and small investors can participate in corporate ownership. It is simple to become an owner of corporate shares of stock and it is just as simple to sell the shares. Organized exchanges, such as the New York Stock Exchange, maintain markets in which shares in thousands of companies are bought and sold each business day. Another advantage is limited liability. Stockholders’ losses are limited to the amount invested in the corporation. Corporate creditors cannot make claims on the personal assets of shareholders to satisfy corporate debt. Corporations are entities created by law that exist separately from their owners and that have rights and privileges. As separate entities, corporations can: Own assets. Incur liabilities. Sue and be sued. Enter into contracts. Stockholders are not agents of the corporation and cannot enter into contracts on the corporation’s behalf.
In addition to voting on important issues at annual meetings, stockholders have other benefits. Stockholders have the right to receive dividends when declared by the board of directors. In the event of liquidation, stockholders share, according to their percentage ownership, in any remaining assets after creditors are paid.
Ultimate control of a corporation rests with the stockholders. At their annual meeting, stockholders elect the Board of Directors and vote on important management issues facing the company. The members of the board of directors hire the executive officers of the corporation. Finally, officers of the corporation empower others to hire needed employees. Employees, officers, and members of the board of directors may also be owners of the corporation.
Authorized shares are the maximum number of shares of stock that can be sold to the public. The number of authorized shares is identified in the corporate charter of the corporation that is issued by the state. Authorized shares are either issued or unissued. Unissued shares are shares of stock that have never been sold to the public. Issued shares are shares of stock that have been sold to the public.
Issued shares can be classified as either outstanding shares or treasury shares. Outstanding shares are shares that have been issued and are currently owned by stockholders. Treasury shares are shares that have been issued to stockholders, but have since been repurchased by the corporation.
Earnings per share is one of the most widely quoted financial ratios. It is a measure of the company’s ability to produce income for each common share outstanding. Earnings per share is equal to income (less preferred dividends, if any) divided by the average number of common shares outstanding for the period. Kroger’s income for 2009 is $1,249,000,000 and the average number of shares outstanding is 652,000,000. Let’s calculate Kroger’s earnings per share for 2009. Kroger’s earnings per share for 2009 is $1.92, obtained by dividing income of $1,249,000,000 by 652,000,000, the average number of shares outstanding for the year.
Kroger has increased earnings per share from $1.56 in 2007 to $1.92 in 2009. We also see a comparison of 2009 earnings per share for Kroger and two competitors.
Corporations have two primary sources of equity. The first is contributed capital. The two accounts in contributed capital, common stock, par value, and capital in excess of par value, represent amounts that shareholders have invested by buying shares of stock from the company. The second source of equity is retained earnings. The retained earnings account reports the cumulative amount of net income the corporation has earned since its organization less the cumulative amount of dividends declared since organization. This is the portion of the net income that has been reinvested in the business rather than distributed to the owners in dividends.
Common stock is the basic voting stock of the corporation. It represents the residual claim on assets in liquidation. Dividends paid must first satisfy preferred stock agreements before any distribution can be made to common stockholders.
Common stock normally has a par value which is usually a very small amount, typically less than one dollar per share. In states that require a par value per share, the par value is also the legal capital that must remain invested in the business.
Par value is an arbitrary amount assigned to each share of stock in the corporate charter. Par value is a nominal amount, and is not related in any manner to market value which is the selling price of a share of stock. In addition to par value stock, some states permit no-par value common stock.
At the initial public offering, shares of stock are sold to the public for the first time, usually through major securities brokerage firms with retail offices in cities across the country. At a later date, the company may wish to raise additional capital with another sale of stock to the public. This is referred to as a seasoned new issue.
When par value stock is sold for cash, the common stock account is credited for the par value of the stock sold. Remember that par value and market value are not related. The difference between the par value of the stock and the market value of the stock is credited to capital in excess of par value. When added together, the amount of par value in the common stock account and the amount in the contributed capital in excess of par value account is equal to the market value of the sale of the stock. We will look at how to account for par value stock. Accounting entries for stated value stock is very similar to accounting for par value stock. When a company has no-par stock, all the proceeds are credited to the common stock account. Let’s look at an example. On July 6, Kroger issued 100,000 shares of $1 par value common stock for $20 per share. Let’s prepare the journal entry to record this transaction. To record this stock issue, we debit cash for the market value of the stock sold: 100,000 shares times $20 per share. We credit common stock for the par value of the share sold: 100,000 shares times $1 per share. Next, we credit capital in excess of par value for the excess of market over par value, $1,900,000.
Once shares of stock are owned by the public, they may be bought and sold in the open market. Such transactions do not involve the company or its accounting records. The millions of shares that are bought and sold on the New York Stock Exchange each business day are examples of this type of transaction.
Many corporations have employee compensation packages that include both salary and stock options. Most stock option plans allow employees to buy shares of stock from the corporation at a predetermined, fixed price. If the market price of the company’s stock rises, holders of stock options can exercise those options and then sell the stock at a profit. Stock option compensation plans can motivate employees to increase financial performance which can increase the stock price. All investors in the company benefit when the stock price increases. If the company granting the options to its employees does not have unissued shares of stock to sell to employees when the stock options are exercised, the company can buy the shares in the open market.
Kroger buys its own shares from current stockholders in a secondary market to make them available for employee stock option plans. The repurchased shares are called treasury stock. In addition to repurchasing shares for employee stock option plans, companies buy their own stock to support the market price, to increase shares needed to use in the acquisition of another company, to limit the shares available for a hostile takeover, and to return cash to shareholders who wish to sell their shares. Treasury stock has no voting or dividend rights. Treasury stock is not an asset. It is a contra equity account and is subtracted from the stockholders’ equity section on the balance sheet. Treasury stock is usually recorded at the cost to purchase it, and the total cost of all shares of treasury stock held by the company is the amount reported as a reduction in stockholders’ equity.
On May 1, Kroger reacquired 100,000 shares of its common stock at $20 per share. The journal entry for May 1 requires a debit to treasury stock and a credit to cash for the cost of the shares, 100,000 shares times $20 per share equals $2,000,000.
On December 3, Kroger reissued 10,000 shares of the treasury stock for $30 per share. Remember that the original cost of the treasury stock was $20 per share. The entry to record the sale of the treasury stock includes a debit to cash for $300,000, a credit to treasury stock for $200,000, and a credit to capital in excess of par value for $100,000. The credit to treasury stock is the original cost of $20 per share times the 10,000 sold. The difference between the selling price and the cost of the treasury stock is the credit to capital in excess of par value. No profit or loss is recognized on treasury stock transactions.
Cash dividends are declared by the board of directors. There is no legal obligation to declare a cash dividend, but once declared, there is a legal obligation to pay the dividend. Most corporations that pay cash dividends pay them quarterly. To pay a cash dividend, a corporation must have two things: Sufficient retained earnings to absorb the dividend without going negative and Enough cash to pay the dividend. There are three important dates to remember when discussing dividends: The date of declaration. The date of record. The date of payment. The date of declaration is the date the directors declare the dividend. At this time a liability is created and must be recorded. The entry at the date of declaration includes a debit to retained earnings and a credit to dividends payable.
The date of record is important because it is the date when the corporation determines the owners of record who will receive the dividend. No entry is required in the accounting records on this date. The date of payment is the date the corporation pays the dividend to the stockholders who owned the stock on the record date. The entry on the date of payment includes a debit to dividends payable and credit to cash for the total amount of cash paid to the owners of record.
Investors are interested in the amount of income that they will receive in the form of dividends. One comparison that investors make is based on dividend yield. To calculate the dividend yield ratio, we divide the annual dividend per share by the market price per share of the company’s common stock. In 2009, Kroger paid a dividend of $0.36 per share and the market price of a share of Kroger stock was $22. The dividend yield for 2009 is 1.6 percent, an increase from 1 Percent ion 2007 and 2008. Kroger’s dividend yield is slightly less than its two competitors.
A stock dividend is a distribution of additional shares of stock to stockholders. All stockholders retain the same percentage ownership. The stockholders have more shares of stock representing the same ownership as they had before the stock dividend. There is no change in total stockholders’ equity and par value per share does not change. Why do corporation issue stock dividends which are merely more pieces of paper evidencing the same percentage ownership? Corporations may issue stock dividends to: Reduce the market price per share of stock to make the shares more affordable for investors to purchase. Signal that the management expects strong financial performance in the future. A stock dividend can be classified as small or large. A small stock dividend is a distribution of stock that is less than 20-25 percent of the outstanding shares. Small stock dividends are recorded at the market value of the stock. A large stock dividend is a distribution of stock that is greater than 20-25 percent of the outstanding shares. Large stock dividends are recorded at the par value of the stock.
A stock split is the distribution of additional shares of stock to stockholders according to their percent ownership. When a stock split occurs, the corporation calls in the outstanding shares and issues new shares of stock. In the process of a stock split, the par value per share of the stock changes. Each shareholder has the same percentage ownership of the company after the split as before the split. So we sometimes say that a stock split creates more, but smaller, pieces of the same pie. Let’s look at an example. Assume that a corporation had 3,000 shares of $2 par value common stock outstanding before a 2–for–1 stock split. After the two-for-one split, the number of shares doubled and the par value was cut in half. Notice that an accounting entry is not required, and that retained earnings is not reduced. In many respects a 100 percent stock dividend and a two-for-one stock split result in similar impacts to the price per share in the stock market. The stock split usually requires more administrative tasks to call in and reissue stock certificates.
Preferred stock is a separate class of stock that typically has priority over common stock in dividend distributions and distribution of assets in a liquidation. Preferred stock usually has a stated dividend that is expressed as a percentage of its par value. It normally does not have voting rights and is often callable by the corporation at a stated value.
US GAAP and International Financial Accounting Standards use different words to describe the same corporate equity accounts. Don’t be misled by the different terminology when there is no difference in substance.
Preferred stock has a current dividend preference when compared to common stock. Current preferred dividends must be paid to preferred stockholders before any dividends are paid to common stockholders. Cumulative preferred stockholders have the right to be paid both the current and all prior periods’ unpaid dividends before any dividends are paid to common stockholders. When the preferred stock is cumulative and the directors do not declare a dividend to preferred stockholders, the unpaid dividend is called a dividend in arrears and must be disclosed in the financial statements. Noncumulative preferred stock has no rights to prior periods’ dividends if they were not declared in those prior periods. Let’s look at an example.
Kites, Inc. has the following stock outstanding: Common stock: $1 par, 100,000 shares Preferred stock: 3%, $100 par, cumulative, 5,000 shares Preferred stock: 6%, $50 par, noncumulative, 3,000 shares Dividends were not paid last year. In the current year, the board of directors declared dividends of $50,000. How much will each class of stock receive? Note that this company has both common stock and two classes of preferred stock. Let’s see how the $50,000 dividend is distributed.
Recall that preferred stockholders receive any declared dividends before common stockholders. In addition, cumulative preferred stockholders have rights to the dividends in arrears from last year in addition to the current year’s dividends. First, we compute the amount of dividends in arrears on the preferred stock. This amount will be paid before any other dividend consideration. The cumulative preferred stockholders have rights to the dividends in arrears from last year in addition to dividends for the current year. The arrearage for last year is $15,000 computed by multiplying 3 percent times the $100 par value times 5,000 shares. The current year’s dividend on the cumulative preferred is also $15,000. Of the original total $50,000 dividend, we now have $20,000 remaining for the noncumulative preferred and the common. Next, we calculate the noncumulative preferred dividend for the current year. It must be paid before common stockholders receive a dividend. The current year’s dividend on the noncumulative preferred is $9,000 computed by multiplying 6 percent times the $50 par value times 3,000 shares. Of the original total $50,000 dividend, we now have $11,000 remaining for the common stockholders. Now, let’s look at a question about dividend declarations.
Retained earnings can have legal or contractual restrictions. In most states, the corporate charters will not allow companies to purchase treasury stock in excess of the balance in retained earnings. Some loan agreements place restrictions on how much dividends can be, based on the balance in retained earnings. Restrictions on retained earnings are generally disclosed in the notes to the financial statements.
Issuing stock for cash and selling treasury stock for cash results in cash inflows. Purchasing treasury stock with cash and paying cash dividends results in cash outflows. These cash flows are reported in the financing activities section of the statement of cash flows.
In addition to corporations, there are two other forms of business organizations: sole proprietorships and partnerships. A sole proprietorship is owned by one person. There are two equity accounts for a sole proprietorship: capital and drawings. Capital is the equivalent of common stock and retained earnings combined for a corporation. Drawings are the equivalent of dividends for a corporation. Let’s look at an example.
On January 2, J. Doe started a retail store by investing $150,000 of his own money. The journal entry on the books of the proprietorship to record this business formation is a debit to cash and a credit to J. Doe, Capital for $150,000. Each month, J. Doe withdraws $1,000 from the business for personal living expenses. The January 30 journal entry to record the first withdrawal is a debit to J. Doe, Drawings and a credit to cash for $1,000.
During the first year, J. Doe’s income totaled $18,000, and his withdrawals totaled $12,000. The equity section of J. Doe’s balance sheet at the end of the first year shows an ending balance in the capital account of $156,000. We arrive at this amount by adding the $18,000 of income to the $150,000 beginning capital balance and subtracting the $12,000 of drawings from the total.
A partnership is owned by two or more individuals. Partnerships require clear agreements about authority, risks, and the sharing of profits and losses. Separate capital and drawings accounts are maintained for each partner. Partnership income is divided among the partners according to the partnership agreement. Partnerships have some advantages and disadvantages when compared to corporations. The primary advantages are ease of formation, complete control by the partners, and the avoidance of income taxes on the partnership income. Each partner pays taxes on his or her share of partnership income. The primary disadvantage of a partnership is unlimited liability. Creditors can make claims against partners’ personal assets to satisfy partnership debts. Let’s look at an example.
On January 2, Able and Baker formed a partnership. Able contributed $60,000 cash. Baker contributed $40,000 cash. The partners agreed to divide partnership income in the ratio of their contributions (60:40). The journal entry to record this business formation on the books of the partnership is a debit to cash for $100,000, a credit to Able, Capital for $60,000, and a credit to Baker, Capital for $40,000.
The partners agreed that each month Able would withdraw $1,000 and Baker would withdraw $650. The January 30 journal entry to record the first withdrawal is a debit to Able, Drawings for $1,000, a debit to Baker, Drawings for $650, and a credit to cash for $1,650.
During the first year, partnership income totaled $30,000. The $30,000 of partnership income is credited to the partners’ capital accounts in the agreed upon 60:40 ratio, with Able receiving $18,000 and Baker receiving $12,000. Withdrawals totaled $12,000 for Able and $7,800 for Baker. The equity section of the partnership balance sheet at the end of the first year shows ending capital balances of $66,000 for Able and $44,200 for Baker. We get these amounts similar to the way we did for the proprietorship, by adding investments and income to the beginning capital balances and deducting withdrawals from the total.
Here’s a convenient summary of the accounting and reporting issues for the three forms of business that we have discussed in this chapter.