C11 - 1
Learning Objectives
Power Notes
1,Nature of a Corporation
2,Stockholders’ Equity
3,Sources of Paid-in Capital
4,Issuing Stock
5,Treasury Stock Transactions
6,Stock Splits
7,Accounting for Dividends
8,Financial Analysis and Interpretation
Chapter F11
C11
Corporations,Organization,Capital Stock,Dividends
C11 - 2
Characteristics of Corporations
Stockholders’ Equity
Issuing Stock
Treasury Stock Transactions
Stock Splits and Dividends
Dividend Yield on Common Stock
Slide # Power Note Topics
3
10
19
22
28
35
Note,To select a topic,type the slide # and press Enter.
Power NotesChapter F11
Corporations,Organization,Capital Stock,Dividends
C11 - 3
Characteristics of Corporations
As a separate legal entity,a corporation may
own and dispose of property in its own name.
The corporation ownership is divided into
units called shares of stock.
The owners of the shares are called
shareholders or stockholders.
Stockholders of a corporation have a limited
liability.
C11 - 4
Characteristics of Corporations
Stockholders
(owners of corporation stock)
Common Stock – the basic ownership of stock
with rights to vote in election of directors,
share in distribution of earnings,and purchase
additional shares.
Preferred Stock – A class of stock with
preferential rights over common stock in
payment of dividends and company
liquidation.
Classes of Stock
C11 - 5
Characteristics of Corporations
Board of Directors
(elected by stockholders)
Stockholders
(owners of corporation stock)
C11 - 6
Characteristics of Corporations
Officers
(selected by board of directors)
Board of Directors
(elected by stockholders)
Stockholders
(owners of corporation stock)
C11 - 7
Characteristics of Corporations
Employees
(hired by officers)
Officers
(selected by board of directors)
Board of Directors
(elected by stockholders)
Stockholders
(owners of corporation stock)
C11 - 8
Forming a Corporation
First step is to file an application of incorporation
with the state.
Because state laws differ,corporations often
organize in states with more favorable laws.
More than half of the largest companies are
incorporated in Delaware.
State grants a charter or articles of incorporation
which formally create the corporation.
Management and board of directors prepare
bylaws which are operation rules and procedures.
C11 - 9
Date Description Debit Credit
Forming a Corporation
Organization Costs 8,500
Cash 8,500
Amortization Expense 1,700
Organization Costs 1,700
$8,500 costs / 5 years = $1,700
Jan,5
Paid organization costs of $8,500.
Amortization of organization costs over 5 years.
Dec,31
Cost of organizing includes legal fees,taxes and
licenses,promotion costs,etc,These costs are
recorded as an intangible asset.
C11 - 10
Stockholders’ Equity
Assets
Liabilities
Stockholders’
Equity
Stockholders’ Equity = Assets – Liabilities
Represents the stockholders’ share of the total assets.
C11 - 11
Stockholders’ Equity
Assets
Liabilities
Stockholders’
Equity
Stockholders’ Equity:
Paid-in capital:
Common stock $330,000
Retained earnings 80,000
Total $410,000
C11 - 12
Stockholders’ Equity
Assets
Liabilities
Stockholders’
Equity
There are two
sources of
stockholders’
equity
Stockholders’ Equity:
Paid-in capital:
Common stock $330,000
Retained earnings 80,000
Total $410,000
C11 - 13
Stockholders’ Equity
Assets
Liabilities
Stockholders’
Equity
from
stockholders
Stockholders’ Equity:
Paid-in capital:
Common stock $330,000
Retained earnings 80,000
Total $410,000
There are two
sources of
stockholders’
equity
1
C11 - 14
Stockholders’ Equity
Assets
Liabilities
Stockholders’
Equity
Stockholders’ Equity:
Paid-in capital:
Common stock $330,000
Retained earnings 80,000
Total $410,000
from earnings
There are two
sources of
stockholders’
equity
2
C11 - 15
Stockholders’ Equity
Assets
Liabilities
Stockholders’
Equity
There are two
sources of
stockholders’
equity
from
stockholders
Stockholders’ Equity:
Paid-in capital:
Common stock $330,000
Retained earnings 80,000
Total $410,000
from earnings
1
2
C11 - 16
Two Classes of Stockholders
Common Stock –
The basic ownership of stock includes:
1,Right to vote in election of directors and other
important matters.
2,Right to share in distribution of earnings.
3,Preemptive right to purchase sufficient shares of
new common stock offerings to maintain an existing
ownership percentage,
Preferred Stock –
A class of stock with preferential rights over
common stock with respect to payment of dividends
and assets of the corporation in liquidation.
C11 - 17
Nonparticipating Preferred Stock
Preferred dividend 4,000 4,000 4,000
Common dividend $6,000 $31,000 $18,000
Dividends per share:
Preferred $ 4.00 $ 4.00 $ 4.00
Common $ 1.50 $ 7.75 $ 4.50
A nonparticipating preferred stock is limited to a
certain amount,Assume 1,000 shares of $4
nonparticipating preferred stock and 4,000 shares of
common stock and the following:
2002 2003 2004
Net income $20,000 $55,000 $62,000
Amount retained 10,000 20,000 40,000
Amount distributed $10,000 $35,000 $22,000
C11 - 18
Cumulative Preferred Stock
Preferred Dividend:
First year in arrears $4,000
Second year in arrears 4,000
Third year current 4,000 12,000
Common dividend $10,000
Dividends per share:
Preferred $ 12.00
Common $ 2.50
Assume 1,000 shares of $4 cumulative preferred stock
and 4,000 shares of common stock,No dividends have
been paid in the preceding two years.
Amount distributed in 3rd year $22,000
C11 - 19
Date Description Debit Credit
Issuing Stock
Cash 1,500,000
Preferred Stock 500,000
Common Stock 1,000,000
The stock accounts are controlling accounts,
A record of each stockholder’s name,address,
and number of shares is kept in a
stockholders subsidiary ledger.
Jan,5
One-half of each class is issued at par for cash.
A corporation is authorized to issue 10,000 shares
of preferred stock,$100 par,and 100,000 shares of
common stock,$20 par,
C11 - 20
Date Description Debit Credit
Premium on Issuing Stock
Cash 110,000
Preferred Stock 100,000
Paid-In Capital in Excess 10,000
The $10,000 excess is recorded in a separate account
because some states do not consider this to be part of
legal capital and may be used for dividends.
Many states do not permit issuance at a discount.
Jan,5
Issued 2,000 shares of $50 par preferred stock for $55.
When stock is issued for more than its par,the
stock has sold at a premium,It has sold at a
discount if issued for less than its par.
C11 - 21
Date Description Debit Credit
Issuing Stock for Non-Cash Assets
Land 120,000
Common Stock 100,000
Paid-In Capital in Excess 20,000
Jan,5
Acquired land (fair market value cannot be
determined) for 10,000 shares of $10 par
common,The current market price of the
stock is $12 per share.
Stock issued for assets other than cash should be
recorded at the fair market value of the asset or
fair market value of the stock,whichever can be
more clearly determined.
C11 - 22
Date Description Debit Credit
Issuing No-Par Stock
Cash 400,000
Common Stock 400,000
Cash 36,000
Common Stock 36,000
Jan,5
Issuance of 10,000 shares of no-par common at $40.
In most states,both preferred and common stock
may be issued without a par value,Preferred
stock,however,is normally assigned a par value.
Jun,15
Issuance of 1,000 shares of no-par common at $36.
C11 - 23
Treasury Stock Transactions
A recent survey indicated that over 64% of companies
reported treasury stock.
Treasury stock is stock that:
1,Has been issued as fully paid.
2,Has been reacquired by the corporation.
3,Has not been canceled or reissued.
A commonly used method of accounting for treasury
stock is the cost method.
The account Treasury Stock is debited for a purchase.
When sold,Treasury Stock is credited and any
difference is debited or credited to an account titled
Paid-In Capital from Sale of Treasury Stock.
C11 - 24
Date Description Debit Credit
Treasury Stock Transactions
Treasury Stock 45,000
Cash 45,000
Cash 12,000
Treasury Stock 9,000
Paid-In Capital–Treasury Stock 3,000
Cash 8,000
Paid-In Capital–Treasury Stock 1,000
Treasury Stock 9,000
Jan,5
Purchased 1,000 shares of treasury stock at $45.
Jun,2
Sold 200 shares of treasury stock at $60.
Sold 200 shares of treasury stock at $40.
Sep,3
C11 - 25
General Ledger
Balance
Date Item Debit Credit Debit Credit
Account,Treasury Stock Account No,380
1/5 1,000 shs.@ $45 45,000 45,000
6/2 200 shs,@ $60 9,000 36,000
9/3 200 shs,@ $40 9,000 27,000
Treasury Stock Transactions – General Ledger
Treasury stock is booked at
cost upon acquisition and sale.
C11 - 26
Balance
Date Item Debit Credit Debit Credit
Account,Paid-In Capital Treasury Stock Account No,395
6/2 200 shs,@ $60 3,000 3,000
9/3 200 shs,@ $40 1,000 2,000
General Ledger
Balance
Date Item Debit Credit Debit Credit
Account,Treasury Stock Account No,380
1/5 1,000 shs.@ $45 45,000 45,000
6/2 200 shs,@ $60 9,000 36,000
9/3 200 shs,@ $40 9,000 27,000
Treasury Stock Transactions – General Ledger
If treasury stock is sold for more than its cost,the
difference is credited to Paid-In Capital Treasury Stock.
C11 - 27
Paid-in capital:
Common stock,$25 par
(20,000 shares authorized and issued) $500,000
Excess of issue price over par 150,000
From sale of treasury stock 2,000
Total paid-in capital $652,000
Retained earnings 130,000
Total $782,000
Deduct treasury stock (600 shares at cost) 27,000
Total stockholders’ equity $755,000
Stockholders’ Equity
Debit balance of Treasury Stock account.
C11 - 28
Corporations sometimes reduce the par or stated value of
their common stock by issuing a proportionate number of
additional shares,This is called a stock split.
An example:
A corporation has 10,000 shares of $100 par common
stock outstanding when a 5-for-1 stock split is declared.
Before:
100,000 shares @ $100 par = $10,000,000
After:
500,000 shares @ $20 par = $10,000,000
The total legal capital is the same,Only the number of
shares and the par per share are changed,No journal
entry is required.
Accounting for Stock Splits
C11 - 29
Dividends
Dividends are distributions of retained earnings
to stockholders.
Dividends may be paid in cash,stock,or property.
Dividends,even on cumulative preferred stock,
are never required,but once declared become a
legal liability of the corporation.
Cash dividends are declared and paid on shares
outstanding with three conditions:
1,Sufficient retained earnings
2,Sufficient cash
3,Formal action by the board of directors
C11 - 30
Date Description Debit Credit
Accounting for Cash Dividends
Cash Dividends 42,500
Cash Dividends Payable 42,500
Cash Dividends Payable 42,500
Cash 42,500
Dec,1
Declared cash dividends on preferred and common.
Preferred,$2.50 x 5,000 shares = $12,500
Common,$0.30 x 100,000 shares = $30,000
A quarterly cash dividend is declared on 5,000
shares of $100 par 10% preferred stock and $0.30
on the 100,000 shares of $10 par common stock.
Jan,2
Paid cash dividend declared on December 1.
C11 - 31
Date Description Debit Credit
Accounting for Stock Dividends
Stock Dividends 3,100,000
Stock Dividends Distributable 2,000,000
Paid-In Capital in Excess of Par 1,100,000
Stock Dividends Distributable 2,000,000
Common Stock 2,000,000
Dec,15
Declared a 100,000 (5%) stock dividend on common.
Market price is $31 a share at declaration date,
Stock dividends transfer pro rata shares of stock
to stockholders,Assume a 5% stock dividend on
common stock,$20 par,2,000,000 shares issued.
Jan,10
Issued the stock dividend declared on December 15.
C11 - 32
Stock Dividends and Stockholders’ Equity
Equity per share $37.80 $36.00
A Stockholder:
Shares owned 1,000 1,050
Total equity $37,800 $37,800
Portion of corporation owned,05%,05%
Before After
Common stock $40,000,000 $42,000,000
Excess of issue price over par 9,000,000 10,100,000
Retained earnings 26,600,000 23,500,000
Total stockholders’ equity $75,600,000 $75,600,000
Number of shares outstanding 2,000,000 2,100,000
C11 - 33
Stock Dividends and Stockholders’ Equity
Equity per share $37.80 $36.00
A Stockholder:
Shares owned 1,000 1,050
Total equity $37,800 $37,800
Portion of corporation owned,05%,05%
Note,The total stockholders’ equity is exactly
the same before and after the stock dividend,
Before After
Common stock $40,000,000 $42,000,000
Excess of issue price over par 9,000,000 10,100,000
Retained earnings 26,600,000 23,500,000
Total stockholders’ equity $75,600,000 $75,600,000
Number of shares outstanding 2,000,000 2,100,000
C11 - 34
Stock Dividends and Stockholders’ Equity
Before After
Common stock $40,000,000 $42,000,000
Excess of issue price over par 9,000,000 10,100,000
Retained earnings 26,600,000 23,500,000
Total stockholders’ equity $75,600,000 $75,600,000
Number of shares outstanding 2,000,000 2,100,000
Note,The individual stockholder’s equity is the same
before and after the stock dividend,although the total
number of shares have increased by 5%,
Equity per share $37.80 $36.00
A Stockholder:
Shares owned 1,000 1,050
Total equity $37,800 $37,800
Portion of corporation owned,05%,05%
C11 - 35
Profitability Measures — The Common Stockholder
Dividend Yield
2000 1999
Dividends per share of common $ 0.80 $ 0.60
Market price per share of common $20.50 $13.50
C11 - 36
Profitability Measures — The Common Stockholder
Dividend Yield
Use,To indicate the rate of return to common
stockholders in terms of dividends
Dividends per share of common $ 0.80 $ 0.60
Market price per share of common $20.50 $13.50
Dividend yield on common stock 3.9% 4.4%
2000 1999
C11 - 37
Note,To see the topic slide,type 2 and press Enter.
This is the last slide in Chapter F11,
Power NotesChapter F11
Corporations,Organization and Equity Rights
Learning Objectives
Power Notes
1,Nature of a Corporation
2,Stockholders’ Equity
3,Sources of Paid-in Capital
4,Issuing Stock
5,Treasury Stock Transactions
6,Stock Splits
7,Accounting for Dividends
8,Financial Analysis and Interpretation
Chapter F11
C11
Corporations,Organization,Capital Stock,Dividends
C11 - 2
Characteristics of Corporations
Stockholders’ Equity
Issuing Stock
Treasury Stock Transactions
Stock Splits and Dividends
Dividend Yield on Common Stock
Slide # Power Note Topics
3
10
19
22
28
35
Note,To select a topic,type the slide # and press Enter.
Power NotesChapter F11
Corporations,Organization,Capital Stock,Dividends
C11 - 3
Characteristics of Corporations
As a separate legal entity,a corporation may
own and dispose of property in its own name.
The corporation ownership is divided into
units called shares of stock.
The owners of the shares are called
shareholders or stockholders.
Stockholders of a corporation have a limited
liability.
C11 - 4
Characteristics of Corporations
Stockholders
(owners of corporation stock)
Common Stock – the basic ownership of stock
with rights to vote in election of directors,
share in distribution of earnings,and purchase
additional shares.
Preferred Stock – A class of stock with
preferential rights over common stock in
payment of dividends and company
liquidation.
Classes of Stock
C11 - 5
Characteristics of Corporations
Board of Directors
(elected by stockholders)
Stockholders
(owners of corporation stock)
C11 - 6
Characteristics of Corporations
Officers
(selected by board of directors)
Board of Directors
(elected by stockholders)
Stockholders
(owners of corporation stock)
C11 - 7
Characteristics of Corporations
Employees
(hired by officers)
Officers
(selected by board of directors)
Board of Directors
(elected by stockholders)
Stockholders
(owners of corporation stock)
C11 - 8
Forming a Corporation
First step is to file an application of incorporation
with the state.
Because state laws differ,corporations often
organize in states with more favorable laws.
More than half of the largest companies are
incorporated in Delaware.
State grants a charter or articles of incorporation
which formally create the corporation.
Management and board of directors prepare
bylaws which are operation rules and procedures.
C11 - 9
Date Description Debit Credit
Forming a Corporation
Organization Costs 8,500
Cash 8,500
Amortization Expense 1,700
Organization Costs 1,700
$8,500 costs / 5 years = $1,700
Jan,5
Paid organization costs of $8,500.
Amortization of organization costs over 5 years.
Dec,31
Cost of organizing includes legal fees,taxes and
licenses,promotion costs,etc,These costs are
recorded as an intangible asset.
C11 - 10
Stockholders’ Equity
Assets
Liabilities
Stockholders’
Equity
Stockholders’ Equity = Assets – Liabilities
Represents the stockholders’ share of the total assets.
C11 - 11
Stockholders’ Equity
Assets
Liabilities
Stockholders’
Equity
Stockholders’ Equity:
Paid-in capital:
Common stock $330,000
Retained earnings 80,000
Total $410,000
C11 - 12
Stockholders’ Equity
Assets
Liabilities
Stockholders’
Equity
There are two
sources of
stockholders’
equity
Stockholders’ Equity:
Paid-in capital:
Common stock $330,000
Retained earnings 80,000
Total $410,000
C11 - 13
Stockholders’ Equity
Assets
Liabilities
Stockholders’
Equity
from
stockholders
Stockholders’ Equity:
Paid-in capital:
Common stock $330,000
Retained earnings 80,000
Total $410,000
There are two
sources of
stockholders’
equity
1
C11 - 14
Stockholders’ Equity
Assets
Liabilities
Stockholders’
Equity
Stockholders’ Equity:
Paid-in capital:
Common stock $330,000
Retained earnings 80,000
Total $410,000
from earnings
There are two
sources of
stockholders’
equity
2
C11 - 15
Stockholders’ Equity
Assets
Liabilities
Stockholders’
Equity
There are two
sources of
stockholders’
equity
from
stockholders
Stockholders’ Equity:
Paid-in capital:
Common stock $330,000
Retained earnings 80,000
Total $410,000
from earnings
1
2
C11 - 16
Two Classes of Stockholders
Common Stock –
The basic ownership of stock includes:
1,Right to vote in election of directors and other
important matters.
2,Right to share in distribution of earnings.
3,Preemptive right to purchase sufficient shares of
new common stock offerings to maintain an existing
ownership percentage,
Preferred Stock –
A class of stock with preferential rights over
common stock with respect to payment of dividends
and assets of the corporation in liquidation.
C11 - 17
Nonparticipating Preferred Stock
Preferred dividend 4,000 4,000 4,000
Common dividend $6,000 $31,000 $18,000
Dividends per share:
Preferred $ 4.00 $ 4.00 $ 4.00
Common $ 1.50 $ 7.75 $ 4.50
A nonparticipating preferred stock is limited to a
certain amount,Assume 1,000 shares of $4
nonparticipating preferred stock and 4,000 shares of
common stock and the following:
2002 2003 2004
Net income $20,000 $55,000 $62,000
Amount retained 10,000 20,000 40,000
Amount distributed $10,000 $35,000 $22,000
C11 - 18
Cumulative Preferred Stock
Preferred Dividend:
First year in arrears $4,000
Second year in arrears 4,000
Third year current 4,000 12,000
Common dividend $10,000
Dividends per share:
Preferred $ 12.00
Common $ 2.50
Assume 1,000 shares of $4 cumulative preferred stock
and 4,000 shares of common stock,No dividends have
been paid in the preceding two years.
Amount distributed in 3rd year $22,000
C11 - 19
Date Description Debit Credit
Issuing Stock
Cash 1,500,000
Preferred Stock 500,000
Common Stock 1,000,000
The stock accounts are controlling accounts,
A record of each stockholder’s name,address,
and number of shares is kept in a
stockholders subsidiary ledger.
Jan,5
One-half of each class is issued at par for cash.
A corporation is authorized to issue 10,000 shares
of preferred stock,$100 par,and 100,000 shares of
common stock,$20 par,
C11 - 20
Date Description Debit Credit
Premium on Issuing Stock
Cash 110,000
Preferred Stock 100,000
Paid-In Capital in Excess 10,000
The $10,000 excess is recorded in a separate account
because some states do not consider this to be part of
legal capital and may be used for dividends.
Many states do not permit issuance at a discount.
Jan,5
Issued 2,000 shares of $50 par preferred stock for $55.
When stock is issued for more than its par,the
stock has sold at a premium,It has sold at a
discount if issued for less than its par.
C11 - 21
Date Description Debit Credit
Issuing Stock for Non-Cash Assets
Land 120,000
Common Stock 100,000
Paid-In Capital in Excess 20,000
Jan,5
Acquired land (fair market value cannot be
determined) for 10,000 shares of $10 par
common,The current market price of the
stock is $12 per share.
Stock issued for assets other than cash should be
recorded at the fair market value of the asset or
fair market value of the stock,whichever can be
more clearly determined.
C11 - 22
Date Description Debit Credit
Issuing No-Par Stock
Cash 400,000
Common Stock 400,000
Cash 36,000
Common Stock 36,000
Jan,5
Issuance of 10,000 shares of no-par common at $40.
In most states,both preferred and common stock
may be issued without a par value,Preferred
stock,however,is normally assigned a par value.
Jun,15
Issuance of 1,000 shares of no-par common at $36.
C11 - 23
Treasury Stock Transactions
A recent survey indicated that over 64% of companies
reported treasury stock.
Treasury stock is stock that:
1,Has been issued as fully paid.
2,Has been reacquired by the corporation.
3,Has not been canceled or reissued.
A commonly used method of accounting for treasury
stock is the cost method.
The account Treasury Stock is debited for a purchase.
When sold,Treasury Stock is credited and any
difference is debited or credited to an account titled
Paid-In Capital from Sale of Treasury Stock.
C11 - 24
Date Description Debit Credit
Treasury Stock Transactions
Treasury Stock 45,000
Cash 45,000
Cash 12,000
Treasury Stock 9,000
Paid-In Capital–Treasury Stock 3,000
Cash 8,000
Paid-In Capital–Treasury Stock 1,000
Treasury Stock 9,000
Jan,5
Purchased 1,000 shares of treasury stock at $45.
Jun,2
Sold 200 shares of treasury stock at $60.
Sold 200 shares of treasury stock at $40.
Sep,3
C11 - 25
General Ledger
Balance
Date Item Debit Credit Debit Credit
Account,Treasury Stock Account No,380
1/5 1,000 shs.@ $45 45,000 45,000
6/2 200 shs,@ $60 9,000 36,000
9/3 200 shs,@ $40 9,000 27,000
Treasury Stock Transactions – General Ledger
Treasury stock is booked at
cost upon acquisition and sale.
C11 - 26
Balance
Date Item Debit Credit Debit Credit
Account,Paid-In Capital Treasury Stock Account No,395
6/2 200 shs,@ $60 3,000 3,000
9/3 200 shs,@ $40 1,000 2,000
General Ledger
Balance
Date Item Debit Credit Debit Credit
Account,Treasury Stock Account No,380
1/5 1,000 shs.@ $45 45,000 45,000
6/2 200 shs,@ $60 9,000 36,000
9/3 200 shs,@ $40 9,000 27,000
Treasury Stock Transactions – General Ledger
If treasury stock is sold for more than its cost,the
difference is credited to Paid-In Capital Treasury Stock.
C11 - 27
Paid-in capital:
Common stock,$25 par
(20,000 shares authorized and issued) $500,000
Excess of issue price over par 150,000
From sale of treasury stock 2,000
Total paid-in capital $652,000
Retained earnings 130,000
Total $782,000
Deduct treasury stock (600 shares at cost) 27,000
Total stockholders’ equity $755,000
Stockholders’ Equity
Debit balance of Treasury Stock account.
C11 - 28
Corporations sometimes reduce the par or stated value of
their common stock by issuing a proportionate number of
additional shares,This is called a stock split.
An example:
A corporation has 10,000 shares of $100 par common
stock outstanding when a 5-for-1 stock split is declared.
Before:
100,000 shares @ $100 par = $10,000,000
After:
500,000 shares @ $20 par = $10,000,000
The total legal capital is the same,Only the number of
shares and the par per share are changed,No journal
entry is required.
Accounting for Stock Splits
C11 - 29
Dividends
Dividends are distributions of retained earnings
to stockholders.
Dividends may be paid in cash,stock,or property.
Dividends,even on cumulative preferred stock,
are never required,but once declared become a
legal liability of the corporation.
Cash dividends are declared and paid on shares
outstanding with three conditions:
1,Sufficient retained earnings
2,Sufficient cash
3,Formal action by the board of directors
C11 - 30
Date Description Debit Credit
Accounting for Cash Dividends
Cash Dividends 42,500
Cash Dividends Payable 42,500
Cash Dividends Payable 42,500
Cash 42,500
Dec,1
Declared cash dividends on preferred and common.
Preferred,$2.50 x 5,000 shares = $12,500
Common,$0.30 x 100,000 shares = $30,000
A quarterly cash dividend is declared on 5,000
shares of $100 par 10% preferred stock and $0.30
on the 100,000 shares of $10 par common stock.
Jan,2
Paid cash dividend declared on December 1.
C11 - 31
Date Description Debit Credit
Accounting for Stock Dividends
Stock Dividends 3,100,000
Stock Dividends Distributable 2,000,000
Paid-In Capital in Excess of Par 1,100,000
Stock Dividends Distributable 2,000,000
Common Stock 2,000,000
Dec,15
Declared a 100,000 (5%) stock dividend on common.
Market price is $31 a share at declaration date,
Stock dividends transfer pro rata shares of stock
to stockholders,Assume a 5% stock dividend on
common stock,$20 par,2,000,000 shares issued.
Jan,10
Issued the stock dividend declared on December 15.
C11 - 32
Stock Dividends and Stockholders’ Equity
Equity per share $37.80 $36.00
A Stockholder:
Shares owned 1,000 1,050
Total equity $37,800 $37,800
Portion of corporation owned,05%,05%
Before After
Common stock $40,000,000 $42,000,000
Excess of issue price over par 9,000,000 10,100,000
Retained earnings 26,600,000 23,500,000
Total stockholders’ equity $75,600,000 $75,600,000
Number of shares outstanding 2,000,000 2,100,000
C11 - 33
Stock Dividends and Stockholders’ Equity
Equity per share $37.80 $36.00
A Stockholder:
Shares owned 1,000 1,050
Total equity $37,800 $37,800
Portion of corporation owned,05%,05%
Note,The total stockholders’ equity is exactly
the same before and after the stock dividend,
Before After
Common stock $40,000,000 $42,000,000
Excess of issue price over par 9,000,000 10,100,000
Retained earnings 26,600,000 23,500,000
Total stockholders’ equity $75,600,000 $75,600,000
Number of shares outstanding 2,000,000 2,100,000
C11 - 34
Stock Dividends and Stockholders’ Equity
Before After
Common stock $40,000,000 $42,000,000
Excess of issue price over par 9,000,000 10,100,000
Retained earnings 26,600,000 23,500,000
Total stockholders’ equity $75,600,000 $75,600,000
Number of shares outstanding 2,000,000 2,100,000
Note,The individual stockholder’s equity is the same
before and after the stock dividend,although the total
number of shares have increased by 5%,
Equity per share $37.80 $36.00
A Stockholder:
Shares owned 1,000 1,050
Total equity $37,800 $37,800
Portion of corporation owned,05%,05%
C11 - 35
Profitability Measures — The Common Stockholder
Dividend Yield
2000 1999
Dividends per share of common $ 0.80 $ 0.60
Market price per share of common $20.50 $13.50
C11 - 36
Profitability Measures — The Common Stockholder
Dividend Yield
Use,To indicate the rate of return to common
stockholders in terms of dividends
Dividends per share of common $ 0.80 $ 0.60
Market price per share of common $20.50 $13.50
Dividend yield on common stock 3.9% 4.4%
2000 1999
C11 - 37
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This is the last slide in Chapter F11,
Power NotesChapter F11
Corporations,Organization and Equity Rights
