FinAcct - Stockholders Equity

1. Holder of equity interest in a business entity is an owner.

2. This represent, ownership, management, claim to share in profit or losses and residual claim to the assets of the business.

• 1. Higher risk
• 2. No fixed return
• 3. Issuance creates dilution of power
• 4. No tax benefits for paying dividends
• 5. Report in stockholders equity section

• 1. Lower risk than equity
• 2. Fixed Return
• 3. Issuance effects risk/credit rating
• 4. Interest payments are tax deductible
• 5. Report in Liabilities section

• 1. mandatorily redeemable preferred stock (Equity)
• 2. Cash settled stock appreciation right (debt)
• 3. Convertible Bond (Debt until converted)

There is a single account for each owner called capital account.

By equity source:

• 1. Contributed Capital
• 2. Retained Earnings

• 1. Preferred Stock Par Value
• 2. Common Stock (minimum legal capital)
• 3. Additional Paid in Capital
• 4. Other Contributed Capital/Adjustments

• 1. Preferred dividend return
• 2. Preferred distribution in liquidation
• 3. Dividend preference is oftern cumulative
• 4. Generally do no participate in earnings beyond dividend preferences

True residual equity interest in the corporation.

• 1. Dividends after preferred are paid
• 2. Dividends only if Board approves
• 3. If liquidation occurs...common stock gets left over.
• 4. Right to vote for Board of Directors

• the amount of contributed capital paid by stockholders in excess of the legal minimum capital associated with either common or preferred stock.
• 1. Amount in excess of par value
• 2. Amoun in excess of stated value
• 3. Note: None in No-Par States

1. No income effect

2. Par or Stated-Value is reported in the common stock account...with any amount in addition being reported as Additional Paid-In Capital.

• Debit Cash
• Credit Common Stock
• Credit APIC

• 1. To meet stock option obligations
• 2. To thwart takeover attempts
• 3. To drive up stock price
• 4. To dive up earnings per share
• 5. To obtain stock for other purposes, such as stock-for-stock acquitions

Repurchased stock may be cancelled or held in treasury.

• Debit Treasury Stock
• Credit Cash

Reissuance at a gain

• Debit Cash
• Credit Treasury Stock
• Credit APIC, TS Transactions

1. Previously earned profits that have not ben distributed to stockholders

2. Distributions to shareholders of these retained profits are called dividends, if paid in cash or property, and reduce the retained earnings account.

1. Can only be paid if Board approves

• 2. Critical dates
• Date of Declaration
• Date of Record
• Date of Payment

1. Black Scholes-Merton Formula

• 1. Expense Entry
• 2. Expiration Entry
• 3. Exercise Entry