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corporations dividends_ retained earnings_ and income reporting-2

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									           CORPORATIONS:
           DIVIDENDS, RETAINED
          EARNINGS, AND INCOME
                REPORTING


Chapter
 14-1
    Dividends

     Stock Split
          Reduces the market value of shares.
          No entry recorded for a stock split.
          Decrease par value and increase number of
          shares.




Chapter
 14-2          LO 1 Prepare the entries for cash dividends and stock dividends.
    Dividends

     Illustration: HH Inc. has 5,000 shares issued and
     outstanding. The per share par value is $1, book
     value $32 and market value is $40.

      2 for 1 Stock Split

          No Entry -- Disclosure that par is now $.50 and
          shares outstanding are 10,000.




Chapter
 14-3            LO 1 Prepare the entries for cash dividends and stock dividends.
    Dividends

   Effects of Stock Dividends




Chapter
 14-4        LO 1 Prepare the entries for cash dividends and stock dividends.
    Retained Earnings

          Retained earnings is net income that a company
          retains for use in the business.

          Net income increases Retained Earnings and a
          net loss decreases Retained Earnings.

          Retained earnings is part of the stockholders’
          claim on the total assets of the corporation.

          A debit balance in Retained Earnings is
          identified as a deficit.

Chapter
 14-5                          Look page 604
    Retained Earnings Restrictions

          Restrictions can result from:
           l Legal restrictions.
           l Contractual restrictions.
           l Voluntary restrictions.

          Companies generally disclose retained earnings
          restrictions in the notes to the financial statements.




Chapter
 14-6            LO 2 Identify the items reported in a retained earnings statement.
    Prior Period Adjustments

      Corrections of Errors
          Result from:
           Ø mathematical mistakes
           Ø mistakes in application of accounting principles
           Ø oversight or misuse of facts

          Corrections treated as prior period adjustments
          Adjustment made to the beginning balance of
          retained earnings



Chapter
 14-7          LO 2 Identify the items reported in a retained earnings statement.
    Prior Period Adjustments




Before issuing the report for the year ended December 31, 2008, you
discover a $50,000 error (net of tax) that caused the 2007 inventory
to be overstated (overstated inventory caused COGS to be lower and
thus net income to be higher in 2007. Would this discovery have any
impact on the reporting of the Statement of Retained Earnings for
2008?
Chapter
 14-8         LO 2 Identify the items reported in a retained earnings statement.
    Retained Earnings Statement




Chapter
 14-9     LO 2 Identify the items reported in a retained earnings statement.
    Retained Earnings Statement

   The company prepares the statement from the
   Retained Earnings account.
                                                             Illustration 14-13




Chapter
 14-10     LO 2 Identify the items reported in a retained earnings statement.
    Retained Earnings Statement

     Question
          All but one of the following is reported in a retained
          earnings statement. The exception is:
           a. cash and stock dividends.
           b. net income and net loss.
           c. some disposals of treasury stock below cost.
           d. sales of treasury stock above cost.




Chapter
 14-11          LO 2 Identify the items reported in a retained earnings statement.

								
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