Chapter 15-1

C H A P T E R C H A P T E R 1515

STOCKHOLDERS’ EQUITYSTOCKHOLDERS’ EQUITY

Intermediate Accounting13th Edition

Kieso, Weygandt, and Warfield

Chapter 15-2

Sale of Treasury Stock

Above Cost

Below Cost

Both increase total assets and stockholders’

equity.

Corporate CapitalCorporate CapitalCorporate CapitalCorporate Capital

LO 4 Describe the accounting for treasury stock.

Chapter 15-3

Corporate CapitalCorporate CapitalCorporate CapitalCorporate Capital

Cash 15,000

Treasury stock11,000

Paid-in capital from treasury stock4,000

Illustration: Pacific acquired 10,000 shares of its treasury stock at $11 per share. It now sells 1,000 shares at $15 per share on March 10. Pacific records the entry as follows.

LO 4 Describe the accounting for treasury stock.

Chapter 15-4

Corporate CapitalCorporate CapitalCorporate CapitalCorporate Capital

Cash 8,000

Paid-in capital from treasury stock 3,000

Treasury stock11,000

Illustration: If Pacific sells an additional 1,000 shares of treasury stock on March 21 at $8 per share, it records the sale as follows.

LO 4 Describe the accounting for treasury stock.

Chapter 15-5

Corporate CapitalCorporate CapitalCorporate CapitalCorporate Capital

Cash 8,000

Paid-in capital from treasury stock 1,000

Retained earnings 2,000

Treasury stock11,000

Illustration: Assume that Pacific sells an additional 1,000 shares at $8 per share on April 10.

LO 4 Describe the accounting for treasury stock.

Illustration 15-6

Chapter 15-6

Retiring Treasury Stock

This decision results in cancellation of the treasury stock and a reduction in the number of shares of issued stock.

Corporate CapitalCorporate CapitalCorporate CapitalCorporate Capital

LO 4 Describe the accounting for treasury stock.

Chapter 15-7

Features often associated with preferred

stock.

1. Preference as to dividends.

2. Preference as to assets in liquidation.

3. Convertible into common stock.

4. Callable at the option of the corporation.

5. Nonvoting.

LO 5 Explain the accounting for and reporting of preferred stock.

Preferred StockPreferred StockPreferred StockPreferred Stock

Chapter 15-8

Cumulative

Participating

Convertible

Callable

Redeemable

LO 5 Explain the accounting for and reporting of preferred stock.

Preferred StockPreferred StockPreferred StockPreferred Stock

Features of Preferred Stock

Accounting for preferred stock at issuance is similar to that for common stock.

Chapter 15-9

Cash 120,000

Preferred stock 100,000

Paid-in capital in excess of par20,000

Illustration: Bishop Co. issues 10,000 shares of $10 par value preferred stock for $12 cash per share. Bishop records the issuance as follows:

LO 5 Explain the accounting for and reporting of preferred stock.

Preferred StockPreferred StockPreferred StockPreferred Stock

Chapter 15-10 LO 6 Describe the policies used in distributing dividends.

Dividend PolicyDividend PolicyDividend PolicyDividend Policy

Dividend distributions generally are based on

accumulated profits (retained earnings).

Few companies pay dividends in amounts

equal to their legally available retained

earnings. Why?

Maintain agreements with creditors.

Meet state incorporation requirements.

To finance growth or expansion.

To smooth out dividend payments.

To build up a cushion against possible losses.

Chapter 15-11

1. Cash dividends.

2. Property dividends.

LO 7 Identify the various forms of dividend distributions.

Types of DividendsTypes of DividendsTypes of DividendsTypes of Dividends

Dividends require information concerning

three dates:

a. Date of declaration

b. Date of record

c. Date of payment

3. Liquidating dividends.

4. Stock dividends.

Chapter 15-12

Cash Dividends

Board of directors vote on the declaration of

cash dividends.

A declared cash dividend is a liability.

Companies do not declare or pay cash

dividends on treasury stock.

LO 7 Identify the various forms of dividend distributions.

Types of DividendsTypes of DividendsTypes of DividendsTypes of Dividends

Chapter 15-13

Illustration: What would be the journal entries made by a corporation that declared a $50,000 cash dividend on March 10, payable on April 6 to shareholders of record on March 25?

March 10 (Declaration Date)

Retained earnings 50,000Dividends payable 50,000

March 25 (Date of Record) April 6 (Payment Date)

Dividends payable 50,000Cash 50,000

Debit Credit

LO 7 Identify the various forms of dividend distributions.

Cash DividendCash DividendCash DividendCash Dividend

No entry

Chapter 15-14

Property Dividends

Dividends payable in assets other than cash.

Restate at fair value the property it will

distribute, recognizing any gain or loss.

LO 7 Identify the various forms of dividend distributions.

Types of DividendsTypes of DividendsTypes of DividendsTypes of Dividends

Chapter 15-15

Illustration: A dividend is declared Jan. 5th and paid Jan. 25th, in bonds held as an investment; the bonds have a book value of $100,000 and a fair market value of $135,000.

Date of Declaration

Investment in bonds 35,000Gain on investment 35,000

and

Date of Issuance

Property dividend payable

135,000Investment in bonds 135,000

Debit Credit

Retained earnings 135,000Property dividend payable 135,000

LO 7 Identify the various forms of dividend distributions.

Property DividendProperty DividendProperty DividendProperty Dividend