weygandt ap 10e powerpoint ch14
TRANSCRIPT
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
1/38
14-1
Distribution of cash or stock to stockholders on a prorata (proportional) basis.
Types of Dividends:
SO 1 Prepare the entr ies for cash div idends and stoc k div idends.
1. Cash dividends.
2. Property dividends.
Dividends expressed: (1) as a percentage of the par orstated value, or (2) as a dollar amount per share.
3. Stock dividends.
4. Scrip.
Dividends
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
2/38
14-2
Three dates:
SO 1 Prepare the entr ies for cash div idends and stoc k div idends.
Dividends
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
3/38
14-3
For a corporation to pay a cash dividend, it must have:
1. Retained earnings - Payment of cash dividends from
retained earnings is legal in all states.
2. Adequate cash.
3. A declaration of dividends by the Board of Directors.
SO 1 Prepare the entr ies for cash div idends and stoc k div idends.
Dividends
Cash Div idends
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
4/38
14-4
Illustration: On Dec. 1, 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 payable on Jan. 20 to
shareholders of record on Dec. 22?
December 1 (Declaration Date)
Cash dividends 50,000
Dividends payable 50,000
December 22 (Date of Record)
January 20 (Payment Date)
SO 1 Prepare the entr ies for cash div idends and stoc k div idends.
Dividends payable 50,000
Cash 50,000
No entry
Dividends
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
5/38
14-5
Allocating Cash Dividends Between Preferredand Common Stock
SO 1 Prepare the entr ies for cash div idends and stoc k div idends.
Holders ofcumulative preferred stock must be paid
any unpaid prior-year dividends before commonstockholders receive dividends.
Dividends
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
6/38
14-6 SO 1 Prepare the entr ies for cash div idends and stoc k div idends.
Illustration: On December 31, 2012, IBR Inc. has 1,000 sharesof 8%, $100 par value cumulative preferred stock. It also has
50,000 shares of $10 par value common stock outstanding. At
December 31, 2012, the directors declare a $6,000 cash dividend.
Prepare the entry to record the declaration of the dividend.
Cash dividends 6,000
Dividends payable 6,000
Pfd Dividends: 1,000 shares x $100 par x 8% = $8,000
Dividends
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
7/38
14-7 SO 1 Prepare the entr ies for cash div idends and stoc k div idends.
2012 2013
Dividends declared 6,000$Dividends in arrears
Allocation to preferred 6,000
Remainder to common -$
* 1,000 shares x $100 par x 8% = $8,000
*
** 2012 Pfd. dividends $8,000 declared $6,000 = $2,000
**
Illustration: At December 31, 2013, IBR declares a $50,000cash dividend. Show the allocation of dividends to each class of
stock.
$ 50,0002,000
8,000
$ 40,000
Dividends
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
8/38
14-8 SO 1 Prepare the entr ies for cash div idends and stoc k div idends.
Cash dividends 50,000
Dividends payable 50,000
Illustration: At December 31, 2013, IBR declares a $50,000 cashdividend. Prepare the entry to record the declaration of the
dividend.
Dividends
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
9/38
14-9
Pro rata distribution of the corporations own stock.
SO 1 Prepare the entr ies for cash div idends and stoc k div idends.
Results in decrease in retained earnings and increase in paid-in capital.
Illustration 14-3
Dividends
Stock Div idends
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
10/38
14-10
Reasons why corporations issue stock dividends:
1. Satisfy stockholders dividend expectations without
spending cash.
2. Increase marketability of the corporations stock.
3. Emphasize a portion of stockholders equity has been
permanently reinvested in the business.
SO 1 Prepare the entr ies for cash div idends and stoc k div idends.
Dividends
Stock Div idends
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
11/38
14-11
Small stock dividend(less than 2025% of the
corporations issued stock, recorded at fair market
value)
Large stock dividend(greater than 2025% of issued
stock, recorded at par value)
SO 1 Prepare the entr ies for cash div idends and stoc k div idends.
* Accounting based on the assumption that a small stock dividend will
have little effect on the market price of the outstanding shares.
*
Dividends
Stock Div idends
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
12/38
14-12
10% stock dividend is declared
Stock dividends (5,000 x 10% x $40) 20,000
Common stock dividends distributable 500
Paid-in capital in excess of par value 19,500
Stock issued
Common stock dividends distributable 500
Common stock (5,000 x 10% x $1) 500
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.
SO 1 Prepare the entr ies for cash div idends and stoc k div idends.
Dividends
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
13/38
14-13
Stockholders' equityPaid-in capital
Common stock, $1 par, 5,000 issuedand outstanding 5,000$
Common stock dividends distributable 500
Paid-in capital in excess of par 64,500
Retained earnings 90,000Total stockholders' equity 160,000$
HH Inc.
Balance Sheet (partial)
Stockholders Equity with DividendsDistributable
SO 1 Prepare the entr ies for cash div idends and stoc k div idends.
Dividends
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
14/38
14-14
HH Inc. Before After Net
Dividend Dividend Change
Stockholders' equity
Paid-in capitalCommon stock, $1 par, 5,000 issued
and outstanding 5,000$ 5,500$ 500$
Paid-in capital in excess of par 45,000 64,500 19,500
Retained earnings 110,000 90,000 (20,000)
Total stockholders' equity 160,000$ 160,000$
Outstanding shares 5,000 5,500
Book value per share 32$ 29$
SO 1 Prepare the entr ies for cash div idends and stoc k div idends.
Effects of Stock Dividends
$ 0
Dividends
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
15/38
14-15
Which of the following statements about small stock dividends
is true?
a. A debit to Stock Dividends for the par value of the shares
issued should be made.
b. A small stock dividend decreases total stockholders
equity.
c. Market value per share should be assigned to the
dividend shares.
d. A small stock dividend ordinarily will have no effect on
book value per share of stock.
Question
SO 1 Prepare the entr ies for cash div idends and stoc k div idends.
Dividends
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
16/38
14-16
In the stockholders equity section, Common Stock
Dividends Distributable is reported as a(n):
a. deduction from total paid-in capital and retainedearnings.
b. current liability.
c. deduction from retained earnings.
d. addition to capital stock.
SO 1 Prepare the entr ies for cash div idends and stoc k div idends.
Dividends
Question
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
17/38
14-17 SO 1 Prepare the entr ies for cash div idends and stoc k div idends.
Dividends
Reduces the market value of shares.
No entry recorded for a stock split.
Decrease par value and increase number of shares.
Stock Spl i t
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
18/38
14-18
2 for 1 Stock SplitNo Entry -- Disclosure that par is now $.50 and shares
outstanding are 10,000.
Illustration: HH Inc. has 5,000 shares issued andoutstanding. The per share par value is $1, book value
$32 and market value is $40.
SO 1 Prepare the entr ies for cash div idends and stoc k div idends.
Dividends
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
19/38
14-19
HH Inc. Before After Net
Split Split Change
Stockholders' equity
Paid-in capitalCommon stock 5,000$ 5,000$ -$
Paid-in capital in excess of par 45,000 45,000 -
Retained earnings 110,000 110,000 -
Total stockholders' equity 160,000$ 160,000$ -$
Outstanding shares 5,000 10,000Book value per share 32$ 16$
SO 1 Prepare the entr ies for cash div idends and stoc k div idends.
Effects of Stock Splits
Dividends
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
20/38
14-20
Net income increases Retained Earnings and a netloss decreases Retained Earnings.
Part of the stockholders claim on the total assets of
the corporation.
Debit balance in Retained Earnings is identified as a
deficit.
SO 2 Identi fy the items repo rted in a retained earning s statement.
Retained Earnings
Illustration 14-9
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
21/38
14-21
Restrictions can result from:
1. Legal restrictions.
2. Contractual restrictions.
3. Voluntary restrictions.
SO 2 Identi fy the items repo rted in a retained earning s statement.
Companies generally disclose retained earnings restrictions inthe notes to the financial statements.
Retained Earn ings Restr ic t ions
Retained Earnings
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
22/38
14-22
Correction of an errorin previously issued financial
statements.
Result from: mathematical mistakes.
mistakes in application of accounting principles.
oversight or misuse of facts.
Adjustment made to the beginning balance of retained
earnings.
SO 2 Identi fy the items repo rted in a retained earning s statement.
Prior Per iod Adjustments
Retained Earnings
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
23/38
14-23
Balance, January 1 1,050,000$
Net income 360,000Dividends (300,000)
Balance, December 31 1,110,000$
For the Year Ended December 31, 2012
Statement of Retained EarningsWoods, Inc.
Before issuing the report for the year ended December 31, 2012, you discover a
$50,000 error (net of tax) that caused the 2011 inventory to be overstated(overstated inventory caused COGS to be lower and thus net income to be higher in
2011. Would this discovery have any impact on the reporting of the Statement of
Retained Earnings for 2012?
SO 2 Identi fy the items repo rted in a retained earning s statement.
Retained Earnings Statement
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
24/38
14-24
Balance, January 1, as previously reported 1,050,000$
Prior period adjustment - error correction (50,000)Balance, January 1, as restated 1,000,000
Net income 360,000
Dividends (300,000)
Balance, December 31 1,060,000$
For the Year Ended December 31, 2012
Statement of Retained EarningsWoods, Inc.
SO 2 Identi fy the items repo rted in a retained earning s statement.
Retained Earnings Statement
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
25/38
14-25 SO 2 Identi fy the items repo rted in a retained earning s statement.
Debits and Credits to Retained Earnings
Illustration 14-13
Retained Earnings Statement
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
26/38
14-26
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.
Question
SO 2 Identi fy the items repo rted in a retained earning s statement.
Retained Earnings Statement
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
27/38
14-27 SO 3
Illustration 14-15
Statement Presentation and Analysis
Stockholders Equity
Presentat ion
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
28/38
14-28
Net Income Available toCommon Stockholders
Return onCommon
StockholdersEquity
=Average Common
Stockholders Equity
SO 3 Prepare and analyze a comp rehensive stockho lders equi ty sect ion.
Ratio shows how many dollars of net income the company
earned for each dollar invested by the stockholders.
Statement Presentation and Analysis
StockholdersEqu i ty Analys is
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
29/38
14-29
IncomeStatement
Presentat ion
SO 4 Descr ibe the form and con tent of corp orat ion income statements.
Illustration 14-17
Statement Presentation and Analysis
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
30/38
14-30
Income Statement Analys is
Net Income minusPreferred DividendsEarnings
Per Share = Weighted-Average CommonShares Outstanding
SO 5 Comp ute Earning s Per Share.
Ratio indicates the net income earned by each share of
outstanding common stock.
Statement Presentation and Analysis
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
31/38
14-31
The income statement for Nadeen, Inc. shows income
before income taxes $700,000, income tax expense
$210,000, and net income $490,000. If Nadeen has
100,000 shares of common stock outstanding throughoutthe year, earnings per share is:
a. $7.00.
b. $4.90.c. $2.10.
d. No correct answer is given.
Question
($490,000 / 100,000 = $4.90)
SO 5 Comp ute Earning s Per Share.
Statement Presentation and Analysis
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
32/38
14-32
Key Points
The term reserves is used in IFRS to indicate all non
contributed (nonpaid-in capital). Reserves include retained
earnings and other comprehensive income items, such as
revaluation surplus and unrealized gains or losses on available-for sale securities.
IFRS often uses terms such as retained profits or accumulated
profit or loss to describe retained earnings. The term retained
earnings is also often used.
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
33/38
14-33
Key Points
The accounting related to prior period adjustment is essentially
the same under IFRS and GAAP. One area where IFRS and
GAAP differ in reporting relates to error corrections in
previously issued financial statements. While IFRS requiresrestatement with some exceptions, GAAP does not permit any
exceptions.
The stockholders equity section is essentially the same under
IFRS and GAAP. However, terminology used to describe certain
components is often different.
Equity is given various descriptions under IFRS, such as
shareholders equity, owners equity, capital and reserves, and
shareholders funds.
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
34/38
14-34
Key Points The income statement using IFRS is called the statement of
comprehensive income. A statement of comprehensive income
is presented in a one- or two-statement format. The single-
statement approach includes all items of income and expense,as well as each component of other comprehensive income or
loss by its individual characteristic. In the two-statement
approach, a traditional income statement is prepared. It is then
followed by a statement of comprehensive income, which starts
with net income or loss and then adds other comprehensiveincome or loss items.
The computations related to earnings per share are essentially
the same under IFRS and GAAP.
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
35/38
14-35
Looking into the Future
The IASB and the FASB are currently working on a project related
to financial statement presentation. An important part of this study
is to determine whether certain line items, subtotals, and totals
should be clearly defined and required to be displayed in the
financial statements. For example, it is likely that the statement of
stockholders equity and its presentation will be examined closely.
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
36/38
14-36
The basic accounting for cash dividends and stock dividends:
a) is different under IFRS versus GAAP.
b) is the same under IFRS and GAAP.
c) differs only for the accounting for cash dividends between
GAAP and IFRS.
d) differs only for the accounting for stock dividends
between GAAP and IFRS.
IFRS Self-Test Questions
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
37/38
14-37
Which item in not considered part of reserves?
a) Unrealized loss on available-for-sale investments.
b) Revaluation surplus.
c) Retained earnings.
d) Issued shares.
IFRS Self-Test Questions
-
7/28/2019 Weygandt AP 10e PowerPoint Ch14
38/38
14 38
Under IFRS, a statement of comprehensive income must
include:
a) accounts payable.
b) retained earnings.
c) income tax expense.
d) preference stock.
IFRS Self-Test Questions