Owner's Equity

Owner’s Equity

Quick Study Sheet

Common Stock – Shares of Ownership  

Authorized – the maximum number
Issued – the cumulative total number of shares sold
Outstanding – shares currently held by investors outside the corporation (Issued – Treasury)
Par Value:  a value per share that is assigned in the corporate charter; legal liability

Preferred Stockholder’s and rights:

1) preference for receiving dividends (par value x # shares x %)
2) No voting rights

Dividends paid to preferred shareholders must be declared by the board of directors 

Cumulative:

If not declared this year, the board may declare this year’s dividend at some point in the future

Non-cumulative:

If not declared this year, the board may not declare in the future   

Dividends in Arrears:

Cumulative dividends not paid to preferred shareholders        

Must be paid before common shareholders are paid

Issue stock to raise capital:

CASH                                        $ = FMV x # shares
       CS / PS   (par)                   $ = Par Value x # shares
       Paid in Capital-CS/PS     $ plug to balance

Treasury Stock: 

The company repurchases it’s own stock from investors to

No gain or loss on sales

Purchase Treasury Stock:
record at what was paid (the original cost)

Treasury Stock                      $XXX
       Cash                                           $XXX      

Sell treasury stock back to investors:

Cash
Treasury Stock
       PIC – TS (or debit RE if need debit)

Dividends:  

Distribution to shareholders, can be cash or additional shares of stock

Declaration date:
The date the board of directors officially declares the dividend 

Retained Earnings                   $XXX
Dividend Payable                      $XXX

Record Date:
The date the corporation prepares the list of owners paid
No journal entry

Payment Date:
The date the payment is made to shareholders on record

Cash dividend:
Dividends Payable               $XXX
Cash                                           $XXX

Stock Dividend:
Retained Earnings               $XXX
       Dividends Payable                  $XXX

Dividends Payable               $XXX
       Common stock                         $XXX
       PIC – CS                                    $XXX

Large > 20-25% Debit R.E. for Par value of stock x # shares
Small < 20-25 % Debit R.E. for Fair MV of stock x # shares

Stock Split
Does not change owner’s equity.
Nothing is issued or received   No J/E
Par value is divided and the number of shares is increase by the ratio