Chapter 15

  1. What are some characteristics of preferred stock?
    • preference to dividends
    • preference to liquidation assets
    • convertible to common stock
    • callable at the corp's option
    • no right to vote
  2. Presentation of stockholder's equity
    % preferred stock, par value, # of shares authorized, # of shares issued and # of outstanding shares

    common stock

    Add'l paid-in capital- Pref

    Add'l paid-in capital- Com

    Add'l paid-in capital- Treasury

    • Retained Earnings
    • less: Treasury stock (at cost)

    Total= Stockholder's Equity
  3. Treasury Stock
    Common stock purchased by the company with the intent of reselling.

    If no intent of reselling, then it is retired
  4. Journal entry for buying treasury stock
    • Dbt: Treasury Stock (at cost!)
    • Crd: Cash
  5. Journal entry for reissuing treasury stock
    • Dbt: Cash
    • Cdt: Treasury Stock
    • Cdt: add'l paid-in cap- T/S
  6. Non-cumulative, Non-participating preferred stock
    Dividends do NOT accumulate if the company misses a year

    The stockholder will only get the stated % on the preferred stock
  7. Cumulative, Non-participating preferred stock
    Dividends are owed for years that they are not distributed, only up to the stated % on the stock

    Dividends are owed for the current year as well, only up to the stated %
  8. Non-cumulative, participating
    Dividends are NOT owed for years they are not distributed

    They are due at least the stated % and most likely the "participating %"
  9. Calculating the participating %
    • Total declared dividends
    • ____________________

    P/S acct + C/S acct

    The participating percentage is then multiplied by the amt in the P/S acct
  10. Cumulative, participating
    Dividends are owed for years they were not distributed.

    BEFORE determining the participating %, deduct dividends in arrears from total dividends
  11. Stock dividends
    issuance of own stock to shareholders

    aka "capitalizing the earnings of the company"
  12. Stock dividend < 20-25%
    The FMV of the stock dividend is taken out of retained earnings
  13. Stock dividend > 25%
    Only par value is deducted from retained earnings
  14. Journal entry for stock dividend DECLARATION
    • Dbt: Retained Earnings
    • Cdt: Common stock dividend distributable
    • Cdt: Additional paid-in capital
  15. Journal entry for stock dividend ISSUED
    • Dbt: Common stock div. distrib
    • Cdt: Common stock
  16. Purpose of stock splits
    to reduce the market value of shares and increase the number of people who hold the stock

    There is NO journal entry

    Par value decreases and number of shares increases
  17. Costs of issuing stocks
    underwriting, accounting fees, legal fees, printing costs, taxes
  18. What are a company's 2 primary sources of equity?
    Contributed Capital (C/S, P/S, Add'l pd-in capital)

    Retained Earnings
  19. What is a pre-emptive right?
    Enables a stockholder to share proportionately in any new issues of stock of the same class
Card Set
Chapter 15
Stockholder's Equity