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1、CHAPTER 12CORPORATIONS: ORGANIZATION, STOCK TRANSACTIONS, DIVIDENDS, AND RETAINED EARNINGSStudy ObjectivesIdentify the major characteristics of a corporationRecord the issuance of common stockExplain the accounting for treasury stockDifferentiate preferred stock from common stock.Prepare the entries
2、 for cash dividendsPrepare and analyze stockholders equity sectionTHE CORPORATE FORM OF ORGANIZATION 公司类型公司类型Two common bases that are used to classify corporations are by purpose目的目的 and ownership所有权所有权A corporation may be organized for the purpose of making a profit盈利盈利, or it may be nonprofit非盈利非
3、盈利THE CORPORATE FORM OF ORGANIZATION 公司类型公司类型Classification by ownership distinguishes between publicly held and privately held corporations.-A publicly held corporation公众持股公司公众持股公司 may have thousands of stockholders and its stock is traded regularly on a national securities market-A privately held
4、corporation私人持股公司私人持股公司 (or closely held corporation) usually has only a few stockholders and does not offer its stock for sale to the general public.CHARACTERISTICS OF A CORPORATION 公司的特征公司的特征A number of characteristics distinguish a corporation from proprietorships and partnerships-Separate legal
5、existence独立法人独立法人 As an entity separate and distinct from its owners, the corporation acts under its own name rather than in the name of its stockholders-Limited liability of stockholders股东的有限责任股东的有限责任 Since a corporation is a separate legal entity, creditors ordinarily have recourse only to corpora
6、te assets to satisfy their claims.CHARACTERISTICS OF A CORPORATION 公司的特征公司的特征-Transferable ownership rights所有权的可转让性所有权的可转让性 Ownership of a corporation is shown in shares of capital stock, which are transferable units.-Ability to acquire capital获得资本的能力获得资本的能力 It is relatively easy for a corporation t
7、o obtain capital through the issuance of stock-Continuous life 持续的时间持续的时间 The life of a corporation is stated in its charter; it may be perpetual or it may be limited to a specific number of years.CHARACTERISTICS OF A CORPORATION 公司的特征公司的特征-Corporate management公司管理公司管理 Although stockholders legally
8、own the corporation, they manage the corporation indirectly through a board of directors they elect.-Government regulations 政府管制政府管制 A corporation is subject to numerous state and federal regulations-Additional taxes 附加的税收附加的税收 Corporations, unlike proprietorships and partnerships, must pay federal
9、and state income taxes as a separate legal entityCORPORATION ORGANIZATION CHART公公司组织结构司组织结构stockholdersBoard of directorVPpersonnelVPproductionVPfinanceVPmarketingCorporatesecretaryControllerTreasurerpresidentADVANTAGES AND DISADVANTAGES OF A CORPORATION 公司的优点和缺点公司的优点和缺点 Advantages Disadvantages Sep
10、arate legal existenceseparation of ownership and managementLimited ownershipGovernment regulationsTransferable ownership rightsAdditional taxesAbility to acquire capitalContinuous lifeprofessional managers FORMING A CORPORATION 建立公司建立公司The corporation, once it receives its charter from the state of
11、incorporation, must establish by-laws for conducting its affairs.Regardless of the number of states in which a corporation has operating divisions, it is incorporated in only one state公司只能在一公司只能在一个州登记注册个州登记注册.FORMING A CORPORATION 建立公司建立公司Costs incurred in the formation of a corporation are called o
12、rganization costs筹筹建费用建费用Organization costs include legal and state fees and promotional expenditures involved in the organization of the businessOrganization costs are expensed as incurredCORPORATE CAPITAL 公司资本公司资本Owners equity in a corporation is identified as stockholders equity, shareholders equ
13、ity股东权益股东权益, or corporate capital公司资本公司资本The stockholders equity section of a corporations balance sheet consists of:-paid-in (contributed) capital投入资本投入资本-retained earnings 留存收益留存收益 (earned capital).OWNERSHIP RIGHTS OF STOCKHOLDERS 股东的所有权股东的所有权To vote in election for board of directors at annual me
14、eting. To vote on actions that require stockholder approvalTo share the corporate earnings through receipt of dividendsDividendsOWNERSHIP RIGHTS OF STOCKHOLDERS 股东的所有权股东的所有权To keep same percentage ownership when new shares of stock are issued .To share in assets upon liquidation 清算清算(破产破产), in propo
15、rtion to their holdings. Called a residual claim because owners are paid with assets remaining after all claims have been paidCORPORATE CAPITALWhen a corporation has only one class of stock, it is identified as common stock普通股普通股A printed or engraved form known as a stock certificate股票股票 serves as p
16、roof of stock ownershipThe amount of stock that a corporation is authorized to sell is indicated in its charter公司章程公司章程The total amount of authorized stock at the time of incorporation usually anticipates both initial and subsequent capital needs of a companyCORPORATE CAPITALA corporation must choos
17、e whether to issue common stock directly to investors or indirectly through an investment banking firm 投资银行投资银行(brokerage house经纪行经纪行) that specializes in informing prospective investors about securitiesThe investment banking firm may agree to underwrite认购认购 an entire indirect stock issueCORPORATE C
18、APITALUnder such an arrangement, the investment banker buys the stock from the corporation at a stipulated price and resells the shares to investorsThe prices set by the marketplace determine a stocks market value市场价值市场价值 and tend to follow the trend of a companys earnings and dividends.CORPORATE CA
19、PITALCapital stock that has been assigned a value per share in the corporate charter is par value stock 有面值股票有面值股票Par value面值面值 is not indicative of the worth or market value of the stock, but does represent the legal capital per share每股法定资本每股法定资本 that must be retained in the business for the protec
20、tion of corporate creditors.CORPORATE CAPITALNo-par value stock无面值股票无面值股票 is capital stock that has not been assigned a value in the corporate charterIn many states the board of directors董事会董事会 is permitted to assign a stated value 约定的价值约定的价值 to the no-par shares, which becomes the legal capital per
21、 shareACCOUNTING FOR COMMON STOCK ISSUES 普通股发行的会计处理普通股发行的会计处理The primary objectives in accounting for the issuance of common stock are to-identify the specific sources of paid-in capital and-maintain the distinction between paid-in capital and retained earningsAccounts DRCRCash 1000 Common Stock 100
22、0(to record issuance of 1000 shares of $1 per share )Hydro-Slide, Inc. issues 1,000 shares of $1 par value common stock at par for cash. The entry to record this transaction is:Hydro-Slide, Inc. issues an additional 1,000 shares of the $1 par value common stock for cash at $5 per share. The entry to
23、 record this transaction is:Accounts DRCRCash 5000 Common stock 1000 Paid-in capital in excess of par value 4000(to record issuance of 1000 shares of $5 per share )STOCKHOLDERS EQUITY PAID-IN CAPITAL IN EXCESS OF PAR VALUEThe total paid-in capital from these two transactions is $6,000, and the legal
24、 capital is $2,000. If Hydro-Slide, Inc. has retained earnings of $27,000, the stockholders equity section is as follows:Stockholders equity Paid-in capital Common stock $ 2,000 Paid-in capital in excess of par value 4,000 Total paid-in capital 6,000 Retained earnings 27,000 Total stockholders equit
25、y $ 33,000ACCOUNTING FOR COMMON STOCK ISSUESWhen no-par common stock has a stated value, the entries are similar to those for par value stockThe stated value represents legal capital and therefore is credited to Common StockWhen the selling price of no-par stock exceeds stated value, the excess is c
26、redited to Paid-in Capital in Excess of Stated ValueAccounts DRCRCash 40,000 Common stock 25,000 Paid-in capital in excess of par value 15,000(to record issuance of 5000 shares )Hydro-Slide, Inc. issues 5,000 shares of $5 stated value no-par stock at $8 per share for cash. The entry is:ACCOUNTING FO
27、R COMMON STOCK ISSUESPaid-in Capital in Excess of Stated Value is reported as part of paid-in capital in the stockholders equity sectionWhen no-par stock does not have a stated value, the entire proceeds from the issue become legal capital and are credited to Common StockAccounts DRCRCash 40,000 Com
28、mon Stock 40,000(to record issuance of 5000 shares of $8 per share )If Hydro-Slide does not assign a stated value to its no-par stock, the issuance of the 5,000 shares at $8 per share for cash is recorded as follows:ACCOUNTING FOR COMMON STOCK ISSUESStock may be issued for services or for non-cash a
29、ssetsA question arises in such cases as to the cost that should be recognized in the exchange transactionTo comply with the cost principle in a non-cash transaction, cost is the cash equivalent price.Thus, cost is either the fair market value of the consideration given up or the fair market value of
30、 the consideration received, whichever is more clearly determinableACCOUNTING FOR COMMON STOCK ISSUESThe attorneys for The Jordan Company agrees to accept 4,000 shares of $1 par value common stock in payment of their bill of $5,000 for services performed in helping the company to incorporate. There
31、is no established market price for the stock at the time of the exchange. Since the market value of the consideration received, $5,000 is more clearly evident, the appropriate entry is:Accounts DRCROrganization costs 5,000 Common stock 4,000 Paid-in capital in excess of par value 1,000ACCOUNTING FOR
32、 COMMON STOCK ISSUESAthletic Research Inc. is a publicly held corporation whose $5 par value stock is actively traded at $8 per share. The company issues 10,000 shares of stock to acquire land recently advertised for sale at $90,000. On the basis of these facts the market price of the consideration
33、given is the most clearly evident value. The par or stated value of the stock is never a factor in determining the cost of the assets received. The entry is:Accounts DRCRLand 80,000 Common stock 50,000 Paid-in capital in excess of par value 30,000ACCOUNTING FOR TREASURY STOCK 库藏股票库藏股票Treasury stock库
34、藏股票库藏股票 is a corporations own stock that has been issued, fully paid for, and reacquired by the corporation but not retired.A corporation may acquire treasury stock for the reasons listed below-Reissue the shares to officers and employees under bonus and stock compensation plans-Increase trading of
35、the companys stock in the securities market in the hopes of enhancing its market valueACCOUNTING FOR TREASURY STOCK 库藏股票库藏股票-Have additional shares available for use in the acquisition of other companies-Reduce the number of shares outstanding and thereby increase earnings per share (EPS 每股每股收益收益).-
36、To avoid a takeover 收购收购STOCKHOLDERS EQUITY WITH NO TREASURY STOCKOn January 1, 2002, the stockholders equity section of Mead, Inc. has 100,000 shares of $5 par value common stock outstanding (all issued at par value) and Retained Earnings of $200,000Stockholders equity Paid-in capital Common stock,
37、 $5 par value,100,000 shares issued and outstanding $ 500,000 Retained earnings 200,000 Total stockholders equity 700,000ACCOUNTING FOR TREASURY STOCKThe cost method is normally used in accounting for treasury stockUnder the cost method, Treasury Stock is debited at the price paid to reacquire the s
38、hares, and the same amount is credited to Treasury Stock when the shares are sold.On February 1, 2002, Mead acquires 4,000 shares of its stock at $8 per share. Treasury Stock is debited for the cost of the shares purchased. The entry is as follows:Date Accounts DRCRFeb 1Treasury Stock 32,000 Cash 32
39、,000(to record purchase of 4000 shares at $8 per share )STOCKHOLDERS EQUITY WITH TREASURY STOCKTreasury Stock is deducted from total paid-in capital and retained earnings in the stockholders equity section.Both the number of shares issued (100,000) and the number of shares in the treasury (4,000) ar
40、e disclosed. The difference is the number of shares of outstanding stock (96,000).The term outstanding stock流通股流通股 means the number of shares of issued stock that are being held by stockholders.Stockholders equity Paid-in capital Common stock, $5 par value, 100,000 shares issued and 96,000 shares ou
41、tstanding $ 500,000 Retained earnings 200,000 Total paid-in capital and retained earnings 700,000 Less: Treasury stock (4,000 shares) 32,000 Total stockholders equity $ 668,000The stockholders equity section of Mead, Inc., after purchase of treasury stock, is as followACCOUNTING FOR TREASURY STOCKTr
42、easury stock is usually sold or retired and the accounting for its sale is different when it is sold above cost than when it is sold below costIf the selling price of the treasury shares is equal to cost, the sale of the shares is recorded with a debit to Cash and a credit to Treasury StockDate Acco
43、unts DRCRJuly 1Cash 8,000 Treasury stock 8,000ACCOUNTING FOR TREASURY STOCKWhen the selling price of the shares is greater than cost, the difference is credited to Paid-in Capital from Treasury StockAssume that $1,000 shares of treasury stock of Mead, Inc. previously acquired for $8 per share, are s
44、old at $10 per share on July 1. The entry is:Date Accounts DRCRJuly 1Cash 10,000 Treasury stock 8,000 Paid-in capital from treasury stock 2,000ACCOUNTING FOR TREASURY STOCKThe $2,000 credit in the July 1 entry is not made to Gain on Sale of Treasury Stock for two reasons:-Gains on sales occur when a
45、ssets are sold and treasury stock is not an asset-A corporation does not realize a gain or suffer a loss from stock transactions with its own stockholdersACCOUNTING FOR TREASURY STOCKPaid-in capital arising from the sale of treasury stock should therefore not be included in the measurement of net in
46、comePaid-in Capital from Treasury Stock is listed separately on the balance sheet as part of paid-in capitalACCOUNTING FOR TREASURY STOCKWhen treasury stock is sold below its cost, the excess of cost over selling price is usually debited to Paid-in Capital from Treasury StockIf Mead, Inc. sells an a
47、dditional 800 shares of treasury stock on October 1 at $7 per share, the entry is:Date Accounts DRCROct 1 Cash 5600Paid-in capital from treasury stock 800 Treasury stock 6400TREASURY STOCK ACCOUNTSObserve from the two sales entries that-Treasury Stock is credited at cost for each entry,-Paid-in Capi
48、tal from Treasury Stock is used for the difference between the cost and the resale price of the shares, and-The original paid-in capital account, Common Stock, again is not affected.TREASURY STOCK ACCOUNTSAfter posting the July 1 and October 1 entries, the treasury stock accounts will show the follo
49、wing balances on October 1: Treasury Stock Feb 1 32,000July 1 8,000Oct 1 6,400Oct 1 17,600 Paid-in capital from Treasury Stock Oct 1 800July 1 2,000Oct 1 1200ACCOUNTING FOR TREASURY STOCKWhen the credit balance in Paid-in Capital from Treasury Stock is eliminated, any additional excess of cost over
50、selling price is debited to Retained Earnings.ACCOUNTING FOR TREASURY STOCKMead, Inc. sells its remaining 2,200 shares at $7 per share on December 1The excess of cost over selling price is $2,200 2,200 X ($8 $7). In this case, $1,200 of the excess is debited to Paid-in Capital from Treasury Stock an
51、d the remaining $1,000 is debited to Retained Earnings. The entry is:Date Accounts DRCRDec 1Cash 15400Paid-in capital from treasury stock 1200Retained Earnings 1000 Treasury stock 17600PREFERRED STOCK 优先股优先股Preferred stock has contractual provisions that give it a preference over common stock in cer
52、tain areasPreferred stockholders have a priority as to-dividends and -assets in the event of liquidationPREFERRED STOCK 优先股优先股They usually do not have voting rights. When a corporation has more than one class of stock, each capital account title should identify the stock to which it relatesStine Cor
53、poration issues 10,000 shares of $10 par value preferred stock for $12 cash per share. The entry to record the issuance is:Date Accounts DRCROct 1 Cash 120,000 Preferred stock 100,000 Paid-in capital in excess of par value preferred stock 20,000COMPUTATION OF TOTAL DIVIDENDS TO PREFERRED STOCKPrefer
54、red stockholders have the right to share in the distribution of corporate income before common stockholdersPreferred stock contracts often contain a cumulative dividend feature累计股利累计股利 which means that preferred stockholders must be paid both current-year dividends and any unpaid prior-year dividend
55、s before common stockholders receive dividendsCOMPUTATION OF TOTAL DIVIDENDS TO PREFERRED STOCKCumulative preferred dividends not declared in a given period are called dividends in arrears.Scientific Leasing has 5,000 shares of 7%, $100 par value cumulative preferred stock outstanding, and the annua
56、l dividend is $35,000 (5,000 X $7 per share).If dividends are 2 years in arrears, preferred stockholders are entitled to receive the following dividends in the current year:DIVIDENDS 股利股利A dividend is distribution by a corporation to its stockholders on a pro rata (equal) basis.A cash dividend现金股利现金
57、股利 is a pro rata distribution of cash to stockholders.For a cash dividend to occur, a corporation must have:-retained earnings-adequate cash, and-declared dividends 宣布派息宣布派息ENTRIES FOR CASH DIVIDENDSThree dates are important in connection with dividends:-the declaration date宣布日宣布日-the record date登记日
58、登记日, and-the payment date支付日支付日Accounting entries are required on two of the dates the declaration date and the payment date. On the declaration date, the board of directors formally declares the cash dividend and announces it to the stockholdersENTRIES FOR CASH DIVIDENDSAn entry is required to reco
59、gnize the decrease in retained earnings and the increase in the liability Dividends PayableOn December 31, 2002, the directors of Media General declare a $.50 per share cash dividend on 100,000 shares of $10 par value common stockThe dividend is $50,000 (100,000 X $.50), and the entry to record the
60、declaration:Date Accounts DRCRDec 31Retained Earnings 50000 Dividends Payable 50000 ENTRIES FOR CASH DIVIDENDSPreferred stock has priority over common stock in regard to dividends. Cash dividends must be paid to preferred stockholders before common stockholders are paid any dividendsIBR Inc. has 1,0
61、00 shares of 8%, $100 par value cumulative preferred stock and 50,000 shares of $10 par value common stock outstanding at December 31, 2002ENTRIES FOR CASH DIVIDENDSThe dividend per share for preferred stock is $8 ($100 par value X 8%), and the required annual dividend for preferred stock is $8,000
62、(1,000 X $8). The directors declare a $6,000 cash dividend on December 31, 2002The total dividend amount goes to the preferred stockholders in this case due to their dividend preference. The entry to record the dividend declaration is:Date Accounts DRCRDec 31Retained Earnings 6,000 Dividends Payable
63、 6,000 ALLOCATING DIVIDENDS TO PREFERRED AND COMMON STOCKSince the preferred stock is cumulative, dividends of $2 per share are in arrears on preferred stock for 2002 and must be paid before any future dividends can be paid on common stock. On December 31, 2003, IBR declares a $50,000 cash dividend.
64、 The allocation of the dividend to the two classes of stock shown above. The entry to record the declaration of the dividend is:Date Accounts DRCRDec 31Retained Earnings 50,000 Dividends Payable 50,000 ALLOCATING DIVIDENDS TO PREFERRED AND COMMON STOCKRETAINED EARNINGS AND CASH BALANCESRetained earn
65、ings is net income that is retained in the businessThe balance in retained earnings is part of the stockholders claim on the total assets of the corporationThe relationship of cash to retained earnings is shown below (all figures in millions).Company Retained earnings (millions ) Cash (millions )Wal
66、t Disney Co.$12,281$414Sears, Roebuck Co.5,952729The Home Depot7,941168A(882)117STOCKHOLDERS EQUITY WITH DEFICITNet losses净损失净损失 are debited to Retained Earnings, not to paid-in capital accountsTo do so would destroy the distinction between paid-in capital and earned capital.A debit balance in retai
67、ned earnings is identified as a deficit and is reported as a deduction in the stockholders equity section, as shown belowStockholders Equity Paid-in Capital common stock 800,000 Retained earnings (50,000)Total stockholders equity 750,000 RETAINED EARNINGS RESTRICTIONS 留存留存收益限制收益限制In some cases, ther
68、e may be retained earnings restrictions that make a portion of the balance currently unavailable for dividends.Restrictions result from one or more of the following causes:-Legal restrictions法律的限制法律的限制. Many states require a corporation to restrict retained earnings for the cost of treasury stock pu
69、rchased which serves to keep intact the corporations legal capital that is temporarily being held as treasury stockRETAINED EARNINGS RESTRICTIONS 留存收益限制留存收益限制-Contractual restrictions合约限制合约限制. Long-term debt contracts may impose a restriction on retained earnings as a condition for the loan.-Volunta
70、ry restrictions自愿限制自愿限制. The board of directors of a corporation may voluntarily create retained earnings restrictions for specific purposesDISCLOSURE OF RESTRICTION 限制的披露限制的披露Retained earnings restrictions are generally disclosed in the notes to the financial statements.Pratt & Lambert, a leading p
71、roducer of architectural finishes (paint), has the following note in a recent financial statement:PRIOR PERIOD ADJUSTMENTS 以前年度调整以前年度调整The correction of an error in previously issued financial statements is known as a prior period adjustmentThe correction is made directly to Retained Earnings becaus
72、e the effect is now in this account;the net income for the prior period has been recorded in retained earnings through the journalizing and posting of closing entriesPRIOR PERIOD ADJUSTMENTS 以前年度调整以前年度调整General Microwave discovers in 2002 that it understated depreciation expense in 2001 by $300,000
73、as a result of computational errors.These errors overstated net income for 2001, and the current balance in retained earnings is also overstated.The entry for the prior period adjustment, assuming all tax effects are ignored, is as follows:Date Accounts DRCRDec 31Retained earnings 300,000 Accumulate
74、d depreciation 300,000STATEMENT PRESENTATION OF PRIOR PERIOD ADJUSTMENTSPrior period adjustments are reported in the retained earnings statementThey are added to (or deducted from) the beginning retained earnings balance to show the adjusted beginning balance.General Microwave has a beginning balanc
75、e of $800,000 in retained earnings and the prior period adjustment is reported as follows: Retained Earnings Statement Balance, Jan 1, as reported $800,000Correction for overstatement of net income in prior period ($300,000) Balance, Jan 1, as adjusted $500,000 DEBITS AND CREDITS TO RETAINED EARNING
76、SThe retained earnings statement留存收益表留存收益表 shows the changes in retained earnings during the year.The statement is prepared from the Retained Earnings account.Transactions and events that affect retained earnings are tabulated in account form as shown below. Retained Earnings Debit Credit 1. net los
77、s 1. Net income 2. Prior period adjustments for overstatement of net income 2. Prior period adjustments for understatement of net income 3. Cash and stock dividend 4. Some disposal of treasury stock GA Company Retained Earnings Statement For the year ended December 31, 2002Balance, Jan 1, as reporte
78、d 1,050,000Correction for understatement of net income in prior period 50,000Balance, Jan 1, as adjusted 1,100,000Add: net income 360,000Less: cash dividends (300,000) Balance, Dec 31, 1,160,000STOCKHOLDERS EQUITY PRESENTATION AND ANALYSISTwo classifications of paid-in capital are recognized:-Capita
79、l stock which consists of preferred and common stock-Additional paid-in capital which includes the excess of amounts paid in over par or stated value and paid-in capital from treasury stock.PUBLISHED STOCKHOLDERS EQUITY SECTIONIn published annual reports, sub-classifications within the stockholders
80、equity section are seldom presentedThe individual sources of additional paid-in capital are often combined and reported as a single amount as shown below:RETURN ON COMMON STOCKHOLDERS EQUITY RATIOA popular ratio that measures profitability from the common stockholders point of view is return on comm
81、on stockholders equity (ROE 股东权益报酬率股东权益报酬率)This ratio shows the amount of net income dollars earned for each dollar invested by the owners.It is calculated by dividing net income by average stockholders equityRETURN ON COMMON STOCKHOLDERS EQUITY RATIOIf Lands End beginning of the year and end of yea
82、r common stockholders equity were $296.2 and $314.2, net income was $34.7 million, and no preferred stock was outstanding, the return on common stockholders equity ratio is:Net IncomePreferred DividendsAverage Common Stockholders EquityReturn on Common Stockholders Equity ($296.2 + $314.2) ($ 34.7 - $0) =11% 2Homework E12-1, E12-2P12-1A
