《會計英語第四版》課件單元6

LessonSix:Owner’sEquity

Aims:1.Todescribethecharacteristicsoflimitedcompany.2.Todifferentiateamongauthorized,issued,andoutstandingshares.3.Tounderstandpreferredstock,andcommonstock.4.Tomeasuretheeffectofissuingstockonacompany’sfinancialposition.5.Toaccountfordividendsandmeasuretheirimpactonacompany.6.Tounderstanddifferentvaluesofastock.7.Toreportstockholders’equitytransactionsontheCashFlowStatements.6.1

Introduction:LimitedCompanyALimitedCompanyisanorganizationcreatedbylawwhichhasatleasttwoownerscalledshareholders.Directorsmanageacompanyandareresponsibleandaccountabletotheshareholders.AlimitedcompanyisalsoregulatedbytheCompaniesActsandhasalegalpersonalityseparateanddistinctfromtheshareholders.6.2

TwoTypesofLimitedCompanyTherearetwotypesoflimitedcompany,publicandprivate.Themaindifferencebetweenthetwotypesofcompanyliesintherestrictionsplacedontheissueortransferoftheirshares.6.3

ShareCapitalThecapitalofalimitedcompanyisdividedintosharesthathaveanominal/parvalue.Thetwomainclassesofsharesareordinaryshares,(orequity),andpreferenceshares.6.4

CommonStock(1)Voteatstockholders’meetings.(2)Shareinearningsdistributions.(3)Purchaseadditionalsharesinproportiontotheowner’spresentholding,ifmoresharesareissuedbythecorporation.(4)Shareintheassetsifthecorporationliquidates.6.5

MeasuretheEffectofIssuingStock

onaCompany’sFinancialPositionCorporationsissuestocktoraisecapitaltofinanceoperations.1.Acorporationissues(sells)allorpartofthestockthatisauthorizedinthecorporatecharter.2.Stockmaybesoldeithertoanunderwriterordirectlytoshareholders.Thepricethatthestockholderpaysiscalledtheissueprice.6.6

PreferredStock

Preferredstockisstockthatgivesitsownercertainpreferencesorrightssuperiortothoseofcommonstock.Usuallythesepreferencespertaintodividendsortodistributionofassetsatliquidation.Preferredstockownerstypicallyhavenovotingrights.6.7

AnExampleofDividendDistributionToillustrate,assumethatKFCCompanyhas4000sharesof$50par,$4preferredstock,and4000sharesof$10parcommonstockoutstanding.Theamountavailablefordividendsfortheyearis$28000.This$28000wouldbeallocatedbetweenthepreferredandcommonsharesasfollows:1.Totalamountavailablefordividends

$280002.Dividendtopreferredstock:4000shares×$4

$160003.Amountavailableforcommonstock$12000Dividendspershare:Preferredstock

$4Commonstock($12000÷4000shares)

$36.8

CumulativeandNon-cumulativePreferredStockPreferredstockonwhichanyunpaiddividendsaccumulatefromyeartoyeariscalledcumulativepreferredstock.Preferredstockonwhichdividendclaimsdonotaccumulatefromyeartoyeariscallednon-cumulativepreferredstock.6.9

CapitalStructureThecapitalstructureofalimitedcompanyistherelationshipbetweenitsvarioussourcesoflongtermcapital.Gearingistherelationshipbetweendebtandequity.Theimportanceofthegearingratioisthatitprovidesinformationaboutanorganization’sfinancialrisk.6.10

CashDividendsCashdividendsaredistributionsmadebyacompanytoitsshareholders.6.11

StockDividendandStockSplitAstockdividendisaproportionaldistributionbyacorporationofitsownstocktoitsownstockholders.Stockdividendsdonottransferassetstostockholdersandthereforeonlyaffectstockholders’equityandstockholdersequityaccounts.Astocksplitisanincreaseinthenumberofsharescoupledwithaproportionatereductionintheparvalueofthestock.Stocksplitsarerecordedwithamemorandumentrybecausenoaccountbalancesareaffected.Stocksplitsreducethemarketpriceofthestock.6.12

TheDifferentValuesofaStockThemarketvalueofastockisitscurrentsellingprice.Theredemptionvalueofastockisthepricethecorporationpaystobuybackitspreferredstock.Thebookvalueofastockmeasurestheamountofnetassetsorstockholdersequitypershare.6.13

ReportingStockholders’EquityTransactions

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