Purchase Sale Stock

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					Stockholder’s Equity
   Why are we studying Stockholders’
    Equity
       Owners Investments
       Residual Equity
       Required Reconciliation Statement
2. Components of Shareholders Equity

   Capital Stock
   Preferred Stock
   Additional Paid in Capital
   Treasury Stock
   Other changes in Assets Accounts
       Investments
       Pensions
       Foreign Currency
Preferred Stock

   1. preferred as to dividends
   2. preference as to assets upon
    liquidation
   3. convertible into common stock
   4. callable at option of corporation
   5. non-voting
Preferred Stock

   Cumulative preferred
       Dividends in arrears
   Participating preferred
   Convertible preferred
       Participation limited
   Callable preferred
       Call premium
Convertible Preferred
    Assume 500s of $100 par sold at
    $120s
1   Cash 500 x $120                      60,000
       Preferred Stock   500 x 100                50,000
       Paid in Capital Preferred stock            10,000
    Assume each preferred=4 shares
    of CS
    Preferred Stock   500 x 100          50,000
    Paid in Capital Preferred stock      10,000
            Common Stock 4 x 500 x                40,000
    $20
           Paid in Capital PS                     20,000
    conversion
    Book value Method
Preferred Stock Conversion
 Assume each preferred=7 shares
 of CS
 Preferred Stock   500 x 100        50,000
  Paid in Capital Preferred stock   10,000
     Retained Earnings ( 70,000-    10,000
 60,000)
      Common Stock 7 x 500 x $20             70,000




 Book value Method
Preferred Stock With Warrants
APB 14
   PS$ = FMV-PS/ (FMV-PS+FMV-warrants) x proceeds

   W$ = FMV-Warrants/ (FMV-PS+FMV-warrants) x
    proceeds

   PS = 115,192 = 119,000/(119,000+6,000)x121,000

   Warrants = 5,808 = 6,000/(119,000+6,000)x121,000
   Preferred Stock with warrants

Cash 1000 x$121                     121,000
 Preferred Stock , 1000 x 100                 100,000
 Paid in capital preferred
           115,192 - 100,000                  15,192
  Common Stock warrants                        5,808
Assume all warrants are exercised
Cash 1000 x 40                      40,000
Common Stock warrants               5,808
    Common Stock 1000 x 10                    10,000
    Paid in capital                           35.808
4. Treasury Stock

   Why?
       Non taxable to shareholders
       Increase Earnings per Share
       Increase return on Equity
       To provide shares for compensation
        agreements
       To thwart take over attempts
       To make a market for the stock
Treasury Stock

   Treasury stock is not an asset
   Treasury stock is issued but not
    outstanding
   Accounting for Purchase
       Cost method
       Par value method (seldom used)
Purchase and sale of treasury Stock
1   Cash                                72,000

     Common Stock 6000 x $10                     60,000
       Paid in Capital                           12,000


2   Treasury Stock 1,000s x $13         13,000
     Cash                                        13,000


3   Cash 600 x $15                      9,000
     Treasury Stock 600 x 13                     7,800
     Paid in capital – Treasury Stock            1,200
Purchase and sale of treasury Stock
4   Cash 200 x $8                     1600

       Paid in Capital –Treasury      1000
    Stock
       Treasury Stock 200 x $13               2600


    Analysis of PIC Treasury stock:   Debit   Credit
1                                             1200
2                                     1000
    Balance is now 200 credit
Purchase and sale of treasury Stock
5   Cash 100 x $10                   1,000

    Paid in capital Treasury stock    200
    Retained Earnings                 100
    Treasury Stock 100 x $13                 1,300
   Retirement of Treasury Stock
Common Stock 100s x $10          1,000

Paid in Capital Common Stock      200
($12,000/6,000s) X 100 shares
Retained Earnings                 100
   Treasury Stock   100 x $13            1,300


$12,000 is remaining par value
 6,000s remaining shares
Green Mail
Black Mail?

   When Common stock is re-acquired
    at a price substantially greater than
    the market value
       Thwart takeover attempt
       Seller may agree to
         Restrict purchases
         Abandon acquisition
Green Mail
6   Treasury Stock 2000 x $13        26,000

    Paid In capital Treasury Stock   0
    (NO)
    Litigation expense settlement    26,000
    2000 x $13
        Cash 2,000 x 26                       52,000

				
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posted:7/29/2011
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