Month: October 2018

Treasury Stock

The shares of treasury stock are held by the issuing corporation which cannot exercise any of the rights of ownership apart from the right to sell them. With the exception of the possible impact on the amount of legal capital, these shares are in substance the same as unissued shares and should generally be accounted …

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Stockholders’ equity

Stockholders’ equity is the total of the claims against a corporation that are held through ownership rights. Stockholders’ claims differ from liabilities in several ways. First, there is generally no preestablished due date on which the owners’ claims have to be satisfied. Second, owners face a much more difficult situation than creditors if they are …

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Anti-dilution and primary and diluted earnings per share

Although primary EPS is less than simple EPS, and fully diluted EPS is less than primary EPS, additional testing must be done to assure that maximum dilution has occurred. If there are any anti-dilutive securities, they should be excluded from the calculations. Primary EPS The only potentially anti-dilutive securities affecting the calculation of primary EPS …

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Financial Statements

Definition and Explanation The financial statements are reports prepared for a variety of readers and are based on information provided by the accounts and other sources. The income statement consists primarily of the titles and balances of the temporary accounts. The balance sheet consists primarily of the titles and balances of the permanent accounts, including …

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Capital stock

Capital stock consists of claims held by owners arising from investments in the firm. A corporation is authorized by the state government to come into existence and to issue shares. Once authorized, the corporation’s shares fall into one of these four categories: Unissued, unsubscribed shares which have not been committed for issuance to anyone. Unissued, …

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Balance sheet

Balance Sheet – Definition A balance sheet is a list of assets and claims over a business at some specific point of time and is prepared from an adjusted trial balance. It shows the financial position of business by detailing the sources of funds and the utilization of these funds. A balance sheet shows the …

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Stock Split

What is a Stock Split? – Definition Stock split is an increase in the number of outstanding shares with a proportionally decreasing par or stated value. Explanation In various circumstances, the board of directors of a corporation may wish to take steps that will alter the number of outstanding shares of stock without affecting the …

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Warrants

What is Warrants? Corporations occasionally issue a special kind of equity security known as warrants. The holder of a warrant has the right to purchase a specified number of shares of stock at a stated price before an expiration date. Warrants, which are also known as stock rights and stock options, are often marketable and …

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Cash Dividend

When a cash dividend is declared, the board of directors specifies an amount that is to be paid per share to stockholders as of a specified record date on a specified payment date. On the date of declaration of a total dividend of $80,000, this journal entry would be recorded: Alternatively, some accountants prefer to …

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Equity compensation

As a method of obtaining agreement between the personal goals of employees and the goals of the stockholders, many corporations provide their key employees with part of their compensation either in the form of equity securities or based upon the value of the firm’s stock. Compensation can be provided through shares of stock, warrants, and …

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Property dividends

Property Dividends – Definition In very limited circumstances, the board of directors of a firm may choose to distribute some asset other than cash to its stockholders. The asset must be sufficiently divisible in order that it can be split up in proportion to the number of shares held. For this reason, property dividends are …

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Small stock dividends

What are small stock dividends? The treatment of small stock dividends differs from the one used for splits effected as dividends because they serve fundamentally different purposes. A small stock dividend is treated as if it is a cash dividend reinvested in capital stock. Consequently, Retained Earnings should be debited for the market value of …

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Reverse stock splits

In relatively infrequent situations, the board of directors may wish to increase the value per share by reducing the number of outstanding shares. While purchasing treasury stock reduces the number of shares, the action may not increase market value per share because of the reduction of the corporation’s resources. Thus, some corporations go through reverse …

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Quasi-reorganization

The overall objective of accounting is to provide information to investors and creditors to help them assess the likelihood, amounts, and timing of cash flows to be received from the firm. Accountants maintain that this objective is most likely to be met if the financial statements are presented in accordance with GAAP. However, if it …

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