Module 9

1. Module 9 Reporting and Analyzing Owner Financing

2. Stockholders’ Equity Total stockholders’ equity is divided into two components: • Contributed capital - proceeds received by the issuing company from original stock issuances, net of the amounts paid to repurchase shares of the issuer’s stock from its investors. • Earned capital - Retained earnings and accumulated other comprehensive income (AOCI).

3. Components of Paid-in-Capital

4. Types of Stock • There are two classes of stock: • Preferred Stock • Common Stock • Preferred stock preferences: • Dividend preference – preferred shareholders receive dividends on their shares before common shareholders do. • Liquidation preference –preferred shareholders receive payment in full before common shareholders in liquidation.

5. Preferred Stock Privileges • Conversion privileges – a conversion privilege allows preferred stockholders to convert their shares into common shares at a predetermined conversion ratio. • Participation feature –allows preferred shareholders to share ratably with common stockholders in dividends.

6. Sale of Stock Illustrated • To illustrate, assume that Accenture issues 100,000 shares of its $0.0000225 par value common stock at a market price of $43 cash per share:

7. Repurchase of Stock Illustrated • To illustrate, assume that 3,000 common shares of Accenture previously issued for $43 are repurchased for $40:

8. Repurchase of Stock Illustrated • Now assume that these 3,000 shares are subsequently resold for $42 cash per share.:

9. Accenture’s Treasury Stock Section of 2005 Balance Sheet

10. Accounting for Dividends: Cash Dividends • Accenture’s Board of Directors authorized cash dividends of approximately $181 million to be paid in fiscal 2006 to Class A common stockholders (602,705,936 shares $0.30 per share). • The financial statement effects of this cash dividend payment are as follows:

11. Preferred and Common Dividends • Assume that a company has 15,000 shares of $50 par value, 8% preferred stock outstanding and 50,000 shares of $5 par value common stock outstanding. • During its first three years in business, the company declares $20,000 dividends in the first year, $260,000 of dividends in the second year, and $60,000 of dividends in the third year. • If the preferred stock is cumulative, the total amount of dividends paid to each class of stock in each of the three years follows:

12. Preferred and Common Dividends (cont’d)

13. Accounting for Dividends: Stock Dividends

14. Small Stock Dividends Illustrated • Assume that a company has 1 million shares of $5 par common stock outstanding. It then declares a small stock dividend of 15% of the outstanding shares when the market price of the stock is $30 per share. This small stock dividend has the following financial statement effects:

15. Large Stock Dividends Illustrated • To illustrate the effect of a large stock dividend, assume that the company now declares a large stock dividend of 70% of the outstanding shares when the market price of the stock is $30 per share. The large stock dividend will have the following effects on the balance sheet:

16. Stock Splits in the Form of a Stock Dividend

17. Accenture’s Accumulated Other Comprehensive Income • Foreign currency translation adjustment • Unrealized gains (losses) on available-for-sale securities • Minimum pension liability

18. Foreign Currency Translation Effects on the Balance Sheet