Welcome to Week 14!

1. Let It SNOW!!! ******* Welcome to Week 14! Financial Accounting: Chapter 9 - 10 Ashton Converse Owners’/Stockholders’ Equity

2. Objectives/Schedule • Welcome • Review TIME! • Quiz Next Week • Advantages and Disadvantages of a corporation • Effect of Issuing Stock • Stock and Dividends • Decision Making with Stock • Application Article of a Companies Stock Report • You will be able to work in groups of no more than 4

3. Review • What is a pension? • Give an example of a lease. • What is the equation for Time Interest Earned Ratio? • What are bonds? • What a is a warranty? • What are the two main types of payrolls? • Define a current installment of long-term debt? • Why are these important to discuss?

4. Quiz Next Week What to Review • Power Points • Chapters after the Exam (6-9) • Homework • Website • Notes • Chapter Reviews • There is no study guide…

5. Opening Question/Thought • What is Owners’ or Stockholders Equity? • Stockholders’ ownership interest in the assets of a corporation • Now discuss with several other people the following: • How can stock impact a company? What is the influence of stock on a company? • What are current disadvantages we know about stock? (come up with 3) • What are the current advantages we know about stock?

6. Defining Owners’ Equity • What is a stockholder? • A person who owns stock in a corporation • Also called a shareholder • Corporation • Reminder it is a separate legal entity • Meaning: it is like an artificial person • Limited Liability • Stockholders have this for the corporation’s debts. • The most they can lose is their investment in the stock • One of the most attractive parts about corporations

7. Organizing a Corporation • Every Corporation should have “bylaws” • Constitution for governing a corporation • Laws, rules, policies that should be used for any organization • What is the “board of directors”? • Group elected by the stockholders to set policy or a corporation and to appoint its officers • The Two Head Positions on a Board • Chairperson: most powerful, elected by board • President: manages day-to-day activities, cheif

8. Defining Stockholders’ Equity Stockholders’ Equity is divided into two main parts: • Paid-in Capital • The amount of stockholders’ equity that stockholders have contributed to the corporation • Retained Earnings • The amount of stockholders’ equity that the corporation has earned through profitable operation of the business and has not given back to stockholders

9. Discuss Exhibits and Graphs • Exhibit 9-2(edition 6, page 420) • This is the authority structure in a corporation • Notice that Stockholders are the top of the chain…they are the most important as they vote for the board of directors • Exhibit 9-3(edition 6, page 421) • This is a stock certificate • Notice several of the main parts: • Company Name, Stockholder Name • Number of shares, Par Value of each share

10. Classes of Stock Corporations issue different types of stock to appeal to a variety of investors: • Common Stock • The most basic form of capital stock • Owners of a corporation/business…and given different rights • Some companies issue different classes • Class A = right to vote • Class B = may be nonvoting

11. Classes of Stock Preferred Stock • Stock that gives its owners certain advantages • Priority to receive dividends before the common stockholders • Priority to receive assets before the common stockholders if the corporation liquidates • Read through Exhibit 9-5 to understand more about Common Stock vs. Preferred Stock vs. Long-Term Debt

12. Deeper Understanding of SE • Par Value • Amount assigned by a company to share or stock • Legal capital • Minimum amount of stockholders’ equity that corporation must maintain for the protection of creditors • Stated Value • Amount assigned to the no-par stock • No-par stock is not common…only 9% of companies use.

13. Practice and APPLY In groups of 2-4 people, talk about and WRITE what the journals and ledgers would look like with the following information: • On January 1st, Arby’s will issue 8,700,000 shares of stock • Class of Stock is Common Stock • Par value is $.01 • Price per Share is $10 • 6,700,000 shares sold in the U.S.A. • 2,000,000 shares sold Internationally

14. Converse about Concepts Treasury Stock • A corporation’s own stock that is has issued and later reacquired Reasons for Purchasing Your Own Stock • Issued all of its authorized stock and needs the stock for giving to employees under stock purchase plans. • The business is trying to increase net assets by buying its shares low and hoping to resell them for a higher price • Management wants to avoid a takeover by an outside party

15. Retirement of Stock • Some companies retire their stock to avoid paying dividends • Usually occurs more with preferred stock • Retired stock cannot be reissued Influence on Statements: • The journal entry debits the stock account and any paid-in capital on the stock • Credits cash

16. WELCOME TO DAY 2 of Week 14! • Welcome: ARE YOU READY FOR THE WEEKEND? • Bake Sale • Review: what did we talk about in the previous class? • Complete Owners’ Equity Discussions • Application Activity for Weekend Work • Long Term Investments and International Operations Discussions and Concepts

17. Retained Earnings, Dividends, and More • Deficit (loss) • Debit balance in the retained earnings account • Arises from when a corporation’s lifetime losses and dividends exceed its lifetime earnings • What is a dividend? • Distribution by a corporation to its stockholders • Usually a cash distribution • Dividends on Preferred Stock are stated either as: • Percentage Rate or Dollar Amount

18. Stock Dividend Proportional distribution by a corporation of its own stock to its stockholders • Give part of companies stock to stockholders Usual Influence on Statements • Increase stock account and decrease retained earnings • Total equity is unchanged, and no asset or liability is affected

19. Reasons for Distributing Dividends Corporations may choose to distribute stock dividends for the two main following reasons: • To continue dividends but conserve cash • Company may want to keep cash for operations, but want to continue to give some type of dividends • To reduce the per-share market price of its stock • Increase the supply of stock to lower the market price • Objective is to make the stock less expensive and attract more investors

20. Concluding Terms and Concepts • What is the Market Value of Stock mean? • Price for which a person could buy or sell a share of stock • What is the Book Value of Stock mean? • Amount of owners’ equity on the company’s books for each share of its stock

21. Ratio Time! • Rate of Return on Total Assets • Net income plus interest expense divided by average total assets • Ratio measures a company’s success in using its assets to earn income for the person who finance the business • Creditors and Stockholders RRTA = Net income + Interest expense Average total assets

22. Ratio Time Rate of Return on Common Stockholders’ Equity • Net income minus preferred dividends, divided by average common stockholders’ equity • Measure of profitability RRCSE = Net Income – Preferred Dividends Average common stockholders’ equity

23. Questions Investors May Have • What category of stock to buy from? • Is this a safe investment? • Does this company have steady dividends? • Are their dividends increasing or not? • Is the stock price increasing…what is the trend? • Overall…how to identify a good stock to buy?

24. Outside Class Learning Take time to study this a little more on your own outside of class. • Class is a learning environment, but not the best…curiosity with tools opens more understanding In Teams of 2 to 4 do the following:(due next week) • Find a companies Stock Report/Article/Etc. • Read the report or article • Write 2 paragraphs discussing what you learned and make a guess whether their stock will be higher or lower in a month. State WHY?

25. CHAPTER 10!!! Only a few more • Long-Term Investments and International Operations: Get ready for the interview questions… What is a short-term investment? • Investment that a company plans to keep for 1 year or less What is a long-term investment? • Keeps for longer than a year

26. Thinking about Investments Investment is a diverse/broad word correct? • What are all the types of investments you can think of? • Stock vs. Bonds • Acquisition of a company vs. Takeovers • Real Estate Sales vs. Rentals and Leases • Jewelry, Antiques, Gold • Other various products • And much more

27. Long-Term Investments • Why would a business want to buy another company? • Resources • Skills and Techniques • Growth in the Market • Development of Current Products • Expansion of other Products • More Power and Higher Image in Society • Money and Investments • Numerous More

28. Purchase of Other Company Concepts • Controlling: • Ownership of a more than 50% of an investee company’s voting stock • Parent Company • An investor company that owns more than 50% of the voting stock of a subsidiary company • Subsidiary Company • An investee company in which a parent company owns more than 50% of the voting stock

29. Consolidation Accounting Method used to combine all the financial statements from each of the companies that are controlled by the same stockholders. • How would this help the investors? • Investors can gain a better perspective on total operations than if they viewed each company’s financial statements • Gives investors a betterunderstanding • Statements have columns in each statement for the “Parent Company” and “Subsidiary Corporation”

30. Converse about Concepts Minority Interest: • A subsidiary company’s equity that is held by stockholders other than the parent company. I AM STILL HOPING FOR SOME SNOW FOR CHRISTMAS

31. InternationalOperations? What is the foreign-currency exchange rate? • The measure of one country’s currency against another country’s currency • Think about the fact of businesses changing the value for accounting purposes Two Main factors affect supply and demand for a particular currency: • The ratio of a country’s imports to its exports • The rate of return available in the country’s capital markets

32. International Concepts Continued • Strong Currency • A currency whose exchange rate is rising relative to other nations currencies • What are some examples? • Weak Currency • A currency whose exchange rate is falling relative to that of other nations • What are some examples?

33. Foreign Currency Transactions How can companies avoid foreign-currency transaction LOSSES? • Insist that the transaction trade be in their currency (U.S. Dollar, Yuan, Yen, Euro, etc.) • Hedging: • Protecting yourself from losing money in one transaction by engaging in a counterbalancing transaction • Losses from one country may be balanced by gains from a different country • Future contracts…create a payable to offset a receivable

34. End International Finance Thoughts • Foreign Currency must be translated back into dollar amounts • Helps with decisions and more • International Accounting Standards • Standards must be known for where your company is located • Standards around the world are different • Some things are similar, but other important details differ • The better you follow the countries standards, the more they will be fond of you being there

35. SEE YOU LATER! • HAVE A GREAT WEEKEND! • I am glad to be your teacher and look forward to hearing about what happens next in your chapter of life! • Give me a shout-out if you want some good coffee, stop by and visit Grace and I.