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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
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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
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Treasury Stock
Common stock purchased by the company with the intent of reselling.
If no intent of reselling, then it is retired
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Journal entry for buying treasury stock
- Dbt: Treasury Stock (at cost!)
- Crd: Cash
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Journal entry for reissuing treasury stock
- Dbt: Cash
- Cdt: Treasury Stock
- Cdt: add'l paid-in cap- T/S
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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
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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 %
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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 %"
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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
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Cumulative, participating
Dividends are owed for years they were not distributed.
BEFORE determining the participating %, deduct dividends in arrears from total dividends
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Stock dividends
issuance of own stock to shareholders
aka "capitalizing the earnings of the company"
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Stock dividend < 20-25%
The FMV of the stock dividend is taken out of retained earnings
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Stock dividend > 25%
Only par value is deducted from retained earnings
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Journal entry for stock dividend DECLARATION
- Dbt: Retained Earnings
- Cdt: Common stock dividend distributable
- Cdt: Additional paid-in capital
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Journal entry for stock dividend ISSUED
- Dbt: Common stock div. distrib
- Cdt: Common stock
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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
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Costs of issuing stocks
underwriting, accounting fees, legal fees, printing costs, taxes
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What are a company's 2 primary sources of equity?
Contributed Capital (C/S, P/S, Add'l pd-in capital)
Retained Earnings
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What is a pre-emptive right?
Enables a stockholder to share proportionately in any new issues of stock of the same class
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