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Acct Reporting Analyzing Stockholders Equity

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					                        11-1




    CHAPTER 11
Reporting & Analyzing
 Stockholder’s Equity
Ch. 11 Reporting & Analyzing Stockholders’              11-2
Equity
    After studying Chapter 11, you should be able to:
   Identify and discuss the major characteristics of a
    corporation.
   Record the issuance of common stock.
   Explain the accounting for purchase of treasury stock.
   Differentiate preferred stock from common stock.
   Prepare the entries for cash dividends and stock
    dividends.
   Identify the items that affect retained earnings.
   Prepare a comprehensive stockholders' equity section.
   Evaluate a corporation's dividend and earnings
    performance from a stockholder's perspective.
                                                        11-3

                     Corporation
   Possess legal entity
   Created by law
   Has most of the rights and privileges of a person
   Classified by purpose and ownership
    Purpose - profit or nonprofit
    Ownership - publicly or privately held
    Publicly Held -May have thousands of
     stockholders and its stock is regularly traded on
     national securities markets.
    Privately Held -May have few stockholders and
     does not offer its stock for sale to general
     public.
                                          11-4
       Characteristics of a Corporation
   Separate legal existence
   Limited liability of stockholders
   Transferable ownership rights
   Ability to acquire capital
   Continuous life
   Formation of corporation
   Corporation management
   Government regulations
   Additional taxes
   Stockholder rights
   see illus. 11-1, 11-3, p. 513
                                   Illustration 11-4
                                              11-5

     Stock Certificate Shows...
name of the corporation
stockholder's name
class and special features of the stock
the number of shares owned
the signatures of duly authorized
  corporate officials.
       Questions in Issuing Stock...              11-6

   How many shares should be authorized for sale?
    Authorized shares = Max. amount of stock a
    corporation is allowed to sell as authorized by
    corporate charter. Outstanding stock = # shares of
    issued stock held by stockholders.
   How should the stock be issued? - Directly or
    through investment bankers.
   At what price should the shares be issued?
     Company's anticipated future earnings
     Its expected dividend rate per share
     Its current financial position
     Current state of economy & securities market
   What value should be assigned to the stock?
                                                          11-7

      Par Value Stock… - illus. 11-5
  Is capital stock that has been assigned an arbitrary
 value per share in the corporate charter.
 Is usually low because some states levy a tax on the
 corporation based on par value.
 The legal capital per share that must be retained in
 the business.
              No-Par Value Stock…
Capital stock that has not been assigned a value per
 share in the corporate charter. Stated value =
 Amount per share assigned by the board of
 directors to no-par stock.
Par & Stated Value have no relationship to Market Value
                                                          11-8
  Stockholders’ Equity Section of a
   Corporation’s Balance Sheet...
Two Parts:
Paid-in (contributed) capital (“PIC”)
  • Amount paid to corporation by stockholders for
    shares of ownership.
Retained earnings (earned capital) (“RE”).
  • Earned capital held for future use in the business.
                                                     11-9
               Accounting for
            Common Stock Issues
   The issue of common stock affects only paid-in
    capital accounts.
   When the issuance of common stock for cash is
    recorded, the par value of the shares is credited to
    Common Stock.
   The portion of the proceeds above or below par
    value is recorded in a separate paid-in capital
    account.
                                                            11-10
                Issuing Stock at Par
  Assume Hydro-Slide, Inc., issues 1,000 shares of $1
  par value of common stock at par for cash.

  Cash                  1,000
     Common Stock                1,000
         Issuing Stock above Par
If Hydro-Slide, Inc., issues an additional 1,000 shares of the $1
   par value common stock for cash at $5 per share, the entry
   is:
Cash 5,000
       Common Stock                                      1,000
      Paid-in Capital in Excess of Par Val.             4,000
               Hydro-Slide, Inc. Illustration 11-6 & 11-7
            Balance Sheet (partial)
Stockholders' equity
 Paid-in capital
  Common stock                             $ 2,000
  Paid-in capital in excess of par           4,000
   Total paid-in capital                   $ 6,000
 Retained earnings                          27,000
Total stockholders' equity                 $33,000
                 Mead, Inc. B/S (partial)
Stockholders' equity
 Paid-in capital
  Common stock,$5par value,
  100,000 shares issued & outstanding     $ 500,000
  Retained Earnings                         200,000
  Total stockholders’ equity                 $ 700,000
  before treasury stock transaction
                                                          11-12
                Treasury Stock...
Is a corporation's own stock
 that has been issued
 fully paid for
 reacquired by the corporation
 held in its treasury for future use.
          Why Acquire Treasury Stock...
 Reissue shares to officers and employees under bonus
   and stock compensation plans.
 Increase trading of company's stock in securities market
   in hopes of enhancing market value.
 Have additional shares available for use in acquisition of
   other companies.
 Reduce number of shares outstanding thereby increasing
   earnings per share.
 Prevent a hostile takeover.
                                                          11-13
         Purchase of Treasury Stock
    On February 1, 2001, Mead acquires 4,000 shares of
    its stock at $8 per share.
    Treasury Stock                    32,000
         Cash                              32,000

   The Treasury Stock account would increase by the cost of the
    shares purchased - $32,000.
   The original paid-in capital account, Common Stock, would
    not be affected because the number of issued shares does
    not change.
   Treasury stock is deducted from total paid-in capital and
    retained earnings in the stockholders' equity section of the
    balance sheet.
                   Mead, Inc.
                                       Illustration 11-8

             Balance Sheet (partial)


Stockholders' equity
 Paid-in capital
  Common stock,$5par value,
      100,000 shares issued and
       96,000 outstanding              $ 500,000
  Retained Earnings                      200,000
  Total stockholders’ equity            700,000
   Less: Treasury Stock                  32,000
Total stockholders’ equity             $ 668,000



 AFTER TREASURY STOCK TRANSACTION
                                                        11-15
                 Preferred Stock...
    Capital stock that has contractual preferences over
    common stock in certain areas.
     Dividends
     Assets in the event of liquidation
    Preferred stockholders do not have voting rights.
   Assume Corporation issues 10,000 shares of $10 par value
            preferred stock for $12 cash per share.

          Cash                                120,000
           Preferred Stock                   100,000
           Paid-in Capital in Excess          20,000
               of Par Value--Preferred Stock
    (Preferred stock may have either a par value or no-
      par value.)
                                                                 11-16
                 Preferred Dividend...
 Cumulative - Is a feature of preferred stock entitling the
   stockholder to receive current & unpaid prior-year dividends
   before common stockholders receive any dividends. No
   guarantee of dividend payment.
Liquidation Pref. - feature that gives preferred stockholders
   preference to corporate assets in the event of liquidation.
Arrears -Are preferred dividends that were scheduled to be
   declared but were not declared during a given period.
    Are not a liability. No liability exists until a dividends is
      declared by board of directors.
    Must be disclosed in the notes to financial statements.
       Dividends in arrears ($35,000 x 2 years)      $ 70,000
       Current-year dividends                          35,000
       Total preferred dividends                      $105,000
                                                        11-17
                       Dividend...
   Is a distribution by a corporation to its stockholders on
    a pro rata basis.
   Pro rata means that if you own 10% of the common
    shares, you will receive 10% of the dividend.
   Dividend forms:
    cash - need RE, cash, declared dividend
    property
    script (promissory note to pay cash)
    stock.
                                                               11-18

               The Declaration Date...
   Is the date the board of directors declares the cash dividend.
   Commits the corporation to a binding legal obligation that
    cannot be rescinded.


    On December 1, 2001 the directors of Media General
    declare a $.50 per share cash dividend on 100,000
    shares of $10 par value common stock.
    The dividend is $50,000 (100,000 x $.50).

    12/1    Retained Earnings   50,000
                Dividends Payable                      50,000
                                                          11-19

                The Record Date...
The date ownership of the outstanding shares is determined for
 dividend purposes. 12/10     No Entry Necessary.



             The Payment Date...

 The date dividend checks are mailed.
 January 20 is the payment date for Media General.

 1/20 Dividends Payable          50,000
            Cash                               50,000
                                                           11-20
                  A Stock Dividend...
   Is a pro rata distribution of corporation's own stock to
    stockholders.
   Is paid in stock.
   Results in a decrease in RE &increase in PIC.
   Does not decrease total stockholders' equity or total assets.
   Is often issued by companies that do not have adequate cash
    to issue a cash dividend.
     You have a 2% ownership interest in Cetus Inc., owning 20 of
        its 1,000 shares of common stock.
     In a 10% stock dividend, 100 shares (1,000 x 10%) of stock
        would be issued. You would receive two shares (2% x 100),
        but your ownership interest would remain at 2%       (22
        /1,100).
     You now own more shares of stock, but your ownership
        interest has not changed.
                                                            11-21

                    Stock Dividends
   Medland Corporation has $300,000 in retained earnings and
    declares a 10% stock dividend on its 50,000 shares of $10 par
    value common stock.
   The current fair market value of the stock is $15 per share.

    Retained Earnings          75,000
      Common Stock Dividends         50,000
        Distributable
      Paid-in Capital in Excess      25,000
        of Par Value
                                                                                                                               11-22


CINCINNATI FINANCIAL CORPORATION
P.O. BOX 145496 CINCINNATI, OHIO 45250-5496 (513) 870-2000

                                                                           April 28, 1995

To Our Shareholders

Your Company is pleased to enclose your 5% Stock Dividend payable today to shareholders of record on March 17.

No fractional shares have been issued. Shareholders entitled to a fraction will find a check for the cash equivalent of such
fractional share based on the closing price on March 17, 1995 of $52.50.

If you are a member of our dividend reinvestment plan, the enclosed represents 5% of those shares registered in your name. The
5% due you for shares held by and registered in the bank’s name was sent directly to the Fifth Third Bank. The next quarterly
statement you receive from the bank will show the 5% paid you on shares held for your account by the bank.

The Company is advised by counsel that, under existing Federal Income Tax law, the stock divided will not result in taxable
income or in gain or loss to the shareholders, except that the cash paid by the Company to the shareholder for a fractional share
must be treated as ordinary income by the shareholder. For any additional information, it is suggested that you check with your tax
advisor.
Your Company sells most types of Property, Casualty and Life insurance. You can contribute to the increased profitably of your
company by purchasing your insurance from one of our agents and by recommending the Company to friends, neighbors or
relatives.

                                                                                    CINCINNATI FINANCIAL CORPORATION
                                                                                    Robert J. Driehaus, Financial Vice President
  # 219085       THE CINCINNATI COMPANIES                             5
                                                                   11-23
                              SHARES
              CINCINNATI FINANCIAL CORPORATION
                   INCORPORATED UNDER THE LAWS OF OHIO   CUSIP 172062 10 1

This Certifies that   ELINDA FISHMAN KISS is the owner of
  ***5*** fully paid and non-assessable shares of common stock of
  the par value of $2.00 per share of Cincinnati Financial Corporation
  transferable only on the books of the Corporation by the holder
  hereof in person or by Attorney upon surrender of this Certificate
  properly endorsed.
       In Witness Whereof, the said Corporation has caused this
  Certificate to be signed by its duly authorized officers and its
  corporate seal to be hereunto affixed.
                                            Dated April 28, 1995
 Robert J. Driehaus       SEAL Robert B. Morgan
          Treasurer                              President
                                                                                                                                            11-24
                               (back of stock certificate)

The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written
out in full according to applicable laws or regulations:
TEN COM - as tenants in common                    UNIF GIFT MIN ACT -___________ Custodian __________
TEN ENT - as tenants by the entireties                                      (Cust)                     (Minor)
JT TEN - as joint tenants with right of                              under Uniform Gifts to Minors
survivorship and not as tenants                                             Act _____________
in common                                                                             (State)


Additional abbreviations may also be used though not in the above list

For Value received, ________________hereby sell, assign and transfer now
PLEASE INSERT SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFYING NUMBER OF ASSIGNEE
                                                               (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)




____________________________________________________________________________________
                                                                shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
___________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated               _________________
                    _________________________________________________________________________
          NOTICE:   THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE
                    CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
                                                                 11-25

                         Stock Split...
   Is the issuance of additional shares of stock to stockholders
    accompanied by:
    A reduction in the par or stated value.
    An increase in number of shares.
   A stock split does not have any effect on total paid-in capital,
    retained earnings, and total stockholders' equity
   Because stock split not affect balances in
    stockholders' equity accounts, it is not necessary to
    journalize a stock split.
                                                                                                                                                            11-26
THE

CINCINNATI
INSURANCE COMPANIES
CINCINNATI FINANCIAL CORPORATION
Mailing Address: P.O. BOX 145496
CINCINNATI, OHIO 45250 -5496 (513) 870-2000

May 15, 1998

TO OUR SHAREHOLDERS:

We are pleased to enclose your stock certificate issued as a r esult of the 3-for-1 stock split declared by your Board of Directors on April 4, 1998.

The enclosed represents the additional shares due you for those shares registered in your name. If you participate in our dividend reinvestment plan, the
additional shares due you for shares held by and registered in the bank's name were sent directly to the Fifth Third Bank. The next quarterly statement you
receive form the bank will show the additional shares issued to you on shares held by the bank for your account .

The Company is advised by counsel that, under exiting Federal Income Tax law, the stock split will not result in taxable income or in gain or loss to the
shareholders. For any additional information, it is suggested that you check with your tax advisor .

                                                       Cordially,

                                                                hynki
                                                       T. F. Elc s
                                                       Theodore F. Elchynski
                                                       Chief Financial Officer
                                                       Secretary and Treasurer

6200 S. Gilmore Road, Fairfield, Ohio 45014 -5141
                                               11-27

       Retained Earnings (RE)...
 Is net income that is retained in the business.
 The balance in retained earnings is part of the
  stockholders' claim on the total assets of the
  corporation.
 Retained earnings does not represent a claim on
  any specific asset.
Deficit = a debit balance in RE & is reported as a
  deduction in the stockholders' equity section of
  the balance sheet.
RE restrictions = legal, contractual or voluntary
  circumstances that make a portion of RE
  currently unavailable for dividends.
              Kmart, Inc.     Illustration 11-18
                                         11-28

          Balance Sheet (Partial)
               (in millions)
Stockholders' equity
 Common stock, $.01 par value;
   1,500,000,000 shares authorized;
    493,358,504 shares issued         $   493
 Capital in excess of par value         1,667
 Retained earnings                      3,819
Total stockholders' equity          $   5,979
                            Ratios                       11-29
   Payout = TOT. CASH DIV. DECLARED ON COMMON STOCK
                                  NET INCOME
     … measures the percentage of earnings distributed in
      form of cash dividends to common stockholders.
   Dividend Yield = DIV. DECLARED per SHARE of COMMON STOCK
                        STOCK PRICE AT END OF YEAR
…reports rate of return an investor earned from dividends.
 EPS = NET INCOME - PREFERRED STOCK DIVIDENDS
             AVERAGE COMMON SHARES OUTSTANDING
 ...measures NI earned on each share of common stock.
 P-E = MARKET PRICE PER SHARE OF STOCK
                         EARNINGS PER SHARE
    ROE = NET INCOME -PREFERRED STOCK DIVIDENDS
       AVERAGE COMMON STOCKHOLDERS’ EQUITY
                            Ratios             Illustration 11-2111-30
                                                                  & 11-23


          P-E = MARKET PRICE PER SHARE OF STOCK
                     EARNINGS PER SHARE
      To make a meaningful comparison of earnings across
                        firms, use the P-E ratio.
      P-E ratio reflects investors' assessment of a company's
                            future earnings.
       Return on Common Equity Ratio (ROCE) or
                      (ROE) =
           NET INCOME -PREFERRED STOCK DIVIDENDS
           AVERAGE COMMON STOCKHOLDERS’ EQUITY
   ...measures the profitability from the stockholders’ point of
                                 view.