CHAPTER 8

1. CHAPTER 8 Accounting for and Presentation of Owners’ Equity

2. Nature of Owners’ Equity Less Total Owners’ Equity TreasuryStock Paid-in Capital RetainedEarnings CommonStock PreferredStock Par orStatedValue AdditionalPaid-InCapital Par orStatedValue AdditionalPaid-InCapital

3. Owners’ Equity Section

4. This transaction has the following effect on the financial statements of Matrix: Paid-in Capital Common Stock Matrix, Inc. issued 100,000 of its $3 par value common stock for $14 per share. The following entry is recorded:

5. Common Stock Issued shares that have been reacquired. Issued shares include outstanding and treasury shares. AuthorizedShares Issued shares that are owned by stockholders.

6. Preferred Stock Normally no votingrights, but dividend payment haspreference overcommon stock. Has a par or statedvalue with dividendexpressed as apercent of par. If callable,may be retired. If convertible, may beexchanged forcommon shares.

7. Preferred Stock Normally, preferred stock is cumulative meaning that all dividends must be paid before any dividend payment to common shareholders. Preferred may be noncumulative. If dividends are not paid, the company is not required to make-up the missed dividends. Matrix, Inc. has 50,000, $100 par value, 6%, cumulative preferred stock outstanding. Calculate the annual dividend on the stock. 50,000 × $100 = $5,000,000 total par × 6% = $300,000 dividend

8. Preferred Stock Versus Bonds

9. Additional Paid-in Capital Represents the excess of the amount received from the sale of preferred or common stock over par (or stated) value

10. Retained earning is NOT cash. Retained Earnings Represents the cumulative earnings of a corporation less the cumulative dividends paid since the business started operations.

11. Cash Dividends The company must have sufficient cash andretained earningsto pay the dividend. Dividends must bedeclaredby the boardof directors beforethey can be legally paid. The company is notlegally required topay dividends, butonce declared alegal liabilityis created.

12. Cash Dividends On January 5, the Board of Directors of Matrix, Inc. declares a cash dividend of $1 per share on the 500,000 shares of common stock outstanding. The dividend is payable to stockholders of record on February 5, and will be paid on March 5. Date of declaration -

13. Cash Dividends On January 5, the Board of Directors of Matrix, Inc. declares a cash dividend of $1 per share on the 500,000 shares of common stock outstanding. The dividend is payable to stockholders of record on February 5, and will be paid on March 5. Date of record - No Entry Required

14. Cash Dividends On January 5, the Board of Directors of Matrix, Inc. declares a cash dividend of $1 per share on the 500,000 shares of common stock outstanding. The dividend is payable to stockholders of record on February 5, and will be paid on March 5. Date of payment -

15. Stock Dividend Distribution of additional shares of stock to stockholders. No change in par value of stock or in total stockholders’ equity. Stockholders retain percentage ownership in the company (preemptive right) Reasons for stock dividends: • Preserve cash. • Decrease market price of stock. • Reduce retained earnings.

16. Large Stock Dividend Stock dividend more than 25% or the outstanding shares. Record at par or stated value of stock. Stock Dividend Small Stock Dividend Stock dividend less than 25% of outstanding shares. Record at currentmarket value of stock.

17. Stock Dividend Matrix, Inc. declares and distributes a 2% stock dividend on its 500,000 common shares outstanding. Par value is $1.00 per share and the current market value is $17 per share.

18. Stock Dividend Matrix, Inc. declares and distributes a 2% stock dividend on its 500,000 common shares outstanding. Par value is $1.00 per share and the current market value is $17 per share.

19. Stock Split Increase thenumber of sharesoutstanding. Decrease the parvalue per share. No change tototalstockholder’sequity. No journal entry required.

20. × 2 ÷ 2 Stock Split Matrix, Inc. has 300,000 shares of $1 par value common stock outstanding before a2–for–1 stock split.

21. Other Comprehensive Income • A new category in owners’ equity called accumulated other comprehensive income (loss) includes the following items: • Cumulative foreign currency translation adjustments. • Unrealized gains or losses on available-for-sale investments, net of related income taxes. • Additional minimum pension liability adjustments, net of related income taxes.

22. Contra owners’ equity account Treasury Stock Matrix, Inc. repurchases 5,000 of its common shares in the open market for $30 per share.

23. 2,000 × $30 cost per share Treasury Stock Matrix, Inc. resells 2,000 of its treasury stock in the open market for $35 per share.

24. Proprietorships and Partnerships Proprietorships (single owner) and partnerships (two or more owners) do not issue stock. Proprietorship Partnership Drawing accounts distributions to owners are similar to dividends. Net income and drawing accounts are transferred to capital accounts at the end of the period.

25. Not-for-Profit Organizations Owners’ equity in not-for-profit and governmental organizations is referred to as fund balance. Individual resource providers do not have specific claims against the organization’s assets.

26. End of Chapter 8