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BSAD 221 Introductory Financial Accounting Donna Gunn, CA

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25 diapositives · 399 Views · Jul 27, 2014

This overview delves into the roles of shareholders and the structure of share capital in corporations. It outlines how shareholders elect the board of directors, the types of shares (common and preferred), and the implications of share issuance, dividends, and stock splits. Highlights include the distinction between authorized, issued, and outstanding shares, as well as the significance of retained earnings and the accounting for cash and stock dividends. This content aims to equip readers with a fundamental understanding of financial accounting related to shares.

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  1. BSAD 221Introductory Financial AccountingDonna Gunn, CA

  2. Shareholders (Owners of voting shares) Elected byshareholders Board of Directors Internal (managers) and External (non-managers) Appointedby directors President Vice President (Production) Vice President (Marketing) Vice President (Finance) Vice President (Controller) Ownership of a Corporation

  3. Outstanding sharesare issued shares that are owned by shareholders. Issued Shares Treasury sharesare issued shares that have been reacquired by the corporation. In Canada, reacquired shares are usually cancelled. Authorized, Issued, and Outstanding Shares Authorized Shares Outstanding Shares Unissued Shares Treasury Shares

  4. Common Shares Preferred Shares Types of Share Capital

  5. Common Shares Basic Voting Shares Dividend set by Board of Directors Dividends paid AFTER preferred share dividends

  6. Share capital Retained earnings Accounting for Share Capital Two primary sources of shareholders’ equity

  7. Sale and Issuance of Capital Shares Initial public offering (IPO) Seasoned new issue The first time a corporation sells shares to the public Subsequent sales of new shares to the public.

  8. Secondary Markets Transactions between two investors that do not affectthe corporation’s accounting records. I’d like to sell some of mySun Life shares. I’d like to buy some of yourSun Life shares.

  9. Sale and Issuance of Shares On July 6, Sun Life issued 100,000 common shares for $22 per share. 100,000 shares × $22 per share = $2,200,000

  10. Shares Issued for Non-cash Assets and/or Services 1.) Record assets or services received at themarket value of the shares given upat the date of the transaction. 2.) If the market value of the shares cannot be determined, then the market value of the assets or services receivedshould be used.

  11. Shares Issued for Non-cash Assets and/or Services On March 14, Sun Life issued 10,000 common shares to the Rose Law firm. The share was selling for $15. 10,000 shares × $15 = $150,000

  12. Declared by board of directors Not legally required Requires sufficient Retained Earnings and Cash Creates liability at declaration Accounting for Cash Dividends $

  13. Dividend Dates Declaration date • Board of directors declares the dividend. • Record a liability.

  14. Dividend Dates • Date of Record • Shareholders holding shares on this date will receive the dividend. (No entry) X

  15. Dividend Dates • Date of Payment • Record the dividend payment to shareholders.

  16. Accounting for Stock Dividends Distribution of additional sharesto shareholders. No change in total shareholders’ equity Retained earnings decrease All shareholders retain the same percentage ownership

  17. Stock Splits Distributions of equal to 100% or more of outstanding shares to shareholders

  18. Stock Splits Assume that a corporation had 5,000 shares outstanding with a book value of $5,000 before a 2–for–1 stock split. Increase No Change Decrease

  19. Preference over common shares Usually has no voting rights Usually has a fixed dividend rate Preferred Shares

  20. Special Features of Preferred Shares Convertible preferred shares may be exchanged for common shares. Callable (redeemable) preferred shares may be repurchased by the corporation at a predetermined price. Retractable preferred shares may be redeemed at the option of the shareholder for the redemption price.

  21. Dividends on Preferred Shares • Current Dividend Preference: The current preferred dividends must be paid before paying any dividends to common shares. • Cumulative Dividend Preference: Any unpaid dividends from previous years (dividends in arrears) must be paid before common dividends are paid.

  22. Dividends on Preferred Shares If the preferred shares arenoncumulative, any dividends not declared in previous years are lostpermanently.

  23. Dividends on Preferred Shares Kites, Inc. has the following shares outstanding: Common shares: 100,000 shares Preferred shares: $3.00, cumulative, 5,000 shares Preferred shares: $4.00, noncumulative, 3,000 shares Dividends were not paid last year. In the current year, the board of directors declared dividends of $50,000. How much will each class of shares receive?

  24. Dividends on Preferred Shares

  25. Focus on Cash Flows