war22ech13 corporations organization stock transactions and dividends revisi
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Adeng Pustikaningsih, M.Si.
Dosen Jurusan Pendidikan Akuntansi
Fakultas Ekonomi
Universitas Negeri Yogyakarta
CP: 08 222 180 1695
Email : adengpustikaningsih@uny.ac.id
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Corporations:
Organization, Stock
Transactions, and
Dividends
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After studying this chapter, you should
be able to:
1. Describe the nature of the corporate
form of organization.
2. Describe the two main sources of
stockholders’ equity.
3. Describe and illustrate the
characteristics of stock, classes of
stock, and entries for issuing stock.
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After studying this chapter, you should
be able to:
4. Journalize the entries for cash
dividends and stock dividends.
5. Journalize the entries for treasury
stock transactions.
6. Describe and illustrate the reporting
of stockholders’ equity.
7. Describe the effect of stock splits on
corporate financial statements.
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Objective 1
13-1
Describe the nature of
the corporate form of
organization.
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Characteristics of a Corporation
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13-1
A corporation is a legal entity,
distinct and separate from the
individuals who create and operate
it. As a legal entity, a corporation
may acquire, own, and dispose of
property in its own name.
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13-1
The stockholders or
shareholders who own the stock
own the corporation.
Corporations whose shares of
stock are traded in public markets
are called public corporations.
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13-1
Corporations whose shares are not
traded publicly are usually owned by
a small group of investors and are
called nonpublic or private
corporations. The stockholders of all
corporation have limited liability.
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13-1
The stockholders control a
corporation by electing a board of
directors and board of
Commissioners. The board meets
periodically to establish corporate
policy. It also selects the chief
executive officer (CEO) and other
major officers.
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Organizational Structure of a Corporation in Indonesia
13-1
Stockholders
Board of Directors
Board of Commissioners
Officers
Employees
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Advantages of the Corporate Form
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13-1
A corporation exists separately from its
owners.
A corporation’s life is separate from its
owners; therefore, it exists indefinitely.
The corporate form is suited for raising
large amounts of money from
stockholders.
(Continued)
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Advantages of the Corporate Form
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13-1
A corporation sells shares of
ownership, called stock. Stockholders
can transfer their shares of stock to
other stockholders.
A corporation’s creditors usually may
not go beyond the assets of the
corporation to satisfy their claims.
(Concluded)
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Disadvantages of the
Corporate Form
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Stockholders control management
through a board of directors (in
Indonesia, troughs a board of
commissioners).
As a separate legal entity, the corporation
is subject to taxation. Thus, net income
distributed as dividends will be taxed at
both the corporate and individual levels.
Corporations must satisfy many
regulatory requirements.
13-1
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Forming a Corporation In
Indonesia
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13-1
• First step, the founders need to check if their
proposed name of the company has not been used by
other.
• Second step, All founders need to sign the Deed of
Establishment before a public notary.
• Third step, the public notary then will file application
of establishment with the Minister of Law and
Human Rights. This process can be done on-line, but
only public notary have access to the web site.
• Fourth step, such establishment and ratification will
then be published in the Supplement to State Gazette
of the Republic of Indonesia.
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Examples of Corporations
and Their States of
Incorporation
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13-1
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Organization Structure of a Corporation
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13-1
Costs may be incurred in organizing a
corporation. The recording of a corporation’s
organizing costs of Rp8,500,000 on January 5 is
shown below:
Jan. 5 Organizational Expense
Cash
8 500 000
8 500 000
Paid costs of organizing
the corporation.
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Objective 2
13-2
Describe the two main
sources of
stockholders’ equity.
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13-2
The owner’s equity in a corporation
is called stockholders’ equity,
shareholders’ equity, shareholders’
investment, or capital.
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Stockholders’ Equity
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13-2
The two sources of capital found in
the Stockholders’ Equity section of a
balance sheet are paid-in capital or
contributed capital (capital
contributed to the corporation by
stockholders and others) and
retained earnings (net income
retained in the business).
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Stockholders’ Equity Section of a
Corporate Balance Sheet
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13-2
Stockholders’ Equity
Paid-in capital:
Common stock
Rp330,000,000
Retained earnings
80,000,000
Total stockholders’ equity
Rp410,000,000
If there is only one class of stock, the
account is entitled Common Stock or
Capital Stock.
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13-2
A debit balance in Retained
Earnings is called a deficit.
Such a balance results from
accumulated net losses.
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Objective 3
13-3
Describe and illustrate the
characteristics of stock,
classes of stock, and
entries for issuing stock.
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Characteristics of Stock
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13-3
The number of shares of stock that a
corporation is authorized to issue is
stated in the charter. A corporation
may reacquire some of the stock that
has been issued. The stock remaining
in the hands of stockholders is then
called outstanding stock.
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13-3
Shares of stock are often assigned a
monetary amount, called par.
Corporations may issue stock
certificates to stockholders to document
their ownership. Some corporations
have stopped issuing stock certificates
except on special request.
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13-3
Stock issued without a par is called
no-par stock. Some states require the
board of directors to assign a stated
value to no-par stock.
Some state laws require that
corporations maintain a minimum
stockholder contribution, called legal
capital, to protect creditors.
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Number of Shares Authorized,
Issued, and Outstanding
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13-3
Outstanding
Issued
Outstanding
Authorized
Issued
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Major Rights That Accompany
Ownership of a Share of Stock
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13-3
1. The right to vote in matters
concerning the corporation.
2. The right to share in distributions
of earnings.
3. The right to share in assets on
liquidation.
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Two Primary Classes of Paid-In Capital
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13-3
The two primary classes of paid-in
capital are common stock and
preferred stock. The primary
attractiveness of preferred stocks is
that they are preferred over common
as to dividends.
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13-3
A corporation has 1,000 shares of Rp4,000 preferred
stock and 4,000 shares of common stock
outstanding. The net income, amount of earnings
retained, and the amount of earnings distributed are
as follows:
2006
Net income
Amount retained
Amount distributed
Rp22,000,000
2007
2008
Rp20,000,000 Rp9,000,000 Rp62,000,000
10,000,000
6,000,000
40,000,000
Rp10,000,000 Rp3,000,000
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Dividends to Common
and Preferred Stock
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Amount distributed
Preferred dividen (1,000 shares)
Common dividend (4,000 shares)
Dividends per share:
Preferred stock
Common stock
2006
Rp10,000,000
4,000,000
6,000,000
2007
Rp3,000,000
3,000,000
0
2008
Rp22,000,000
4,000,000
18,000,000
Rp4,000
Rp1,500
Rp3,000
none
Rp4,000
Rp4500
13-3
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13-3
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Example Exercise 13-1
PT Cahaya Sakti has stock 20,000 shares of 1% preferred
stock of Rp100,000 par and 100,000 shares of Rp50,000 par
common stock. The following amounts were distributed as
dividends:
Year 1: Rp10,000,000
Year 2: 25,000,000
Year 3: 80,000,000
Determine the dividends per share for preferred and
common stock for each year.
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13-3
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Follow My Example 13-1
Year 1
Amount distributed
Preferred dividend (20,000
shares)
Common dividend (100,000
shares)
Dividends per share:
Preferred
Common stock
Year 2
Year 3
Rp10,000,000 Rp25,000,000 Rp80,000,000
10,000,000
Rp
0
Rp500
None
For Practice: PE 13-1A, PE 13-1B
20,000,000
20,000,000
Rp 5,000,000 Rp60,000,000
Rp1,000
Rp500
Rp1,000
Rp600
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Issuing Stock
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13-3
A corporation is authorized to issue 10,000 shares of
preferred stock, Rp100,000 par, and 100,000 shares
of common stock, Rp20,000 par. One-half of each
class of authorized shares is issued at par for cash.
Cash
Preferred Stock
Common Stock
Issued preferred stock and
1 500 000 000
500 000 000
1 000 000 000
common stock at par for cash.
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13-3
When a stock is issued for a
price that is more than its
par, the stock has sold at a
premium. When stock is
issued for a price that is less
than its par, the stock has
sold at a discount.
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Premium on Stock
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13-3
PT Cahaya Cemerlang issues 2,000 shares of
Rp50,000 par preferred stock for cash at Rp55,000.
Cash
Preferred Stock
110 000 000
100 000 000
Paid-in Capital in Excess of
Par—Preferred Stock
Issued Rp50,000 par
preferred stock at Rp55,000.
10 000 000
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13-3
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A corporation acquired land for which the fair market
value cannot be determined. The corporation issued
10,000 shares of Rp10,000 par common that has a current
market value of Rp12,000 in exchange for the land.
Land
120 000 000
Common Stock
Paid-in Capital in Excess of Par
100 000 000
20 000 000
Issued Rp10,000 par common
stock valued at Rp12,000 per
share, for land.
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No-Par Stock
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13-3
A corporation issues 10,000 shares of nopar common stock at Rp40,000 a share.
Cash
Common Stock
Issued 10,000 shares of nopar common stock at
Rp40,000.
400 000 000
400 000 000
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13-3
At a later date, the corporation issues
1,000 additional shares at Rp36,000.
Cash
36 000 000
Common Stock
Issued 1,000 shares of no-par
36 000 000
common stock at Rp36,000.
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Stated Value
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13-3
Some states require that the
entire proceeds from the issue
of no-par stock be recorded as
legal capital. In other states,
no-par stock may be assigned
a stated value per share.
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Stated Value
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13-3
Using the same data as we used for par the
transaction is recorded as follows:
Cash
400 000 000
Common Stock
Paid-in Capital in Excess of
Stated Value
250 000 000
150 000 000
Issued 10,000 shares of nopar common at Rp40,000.
Stated value, Rp25,000.
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13-3
The corporation issued 1,000 shares of no-par
common stock at Rp36,000 (stated value, Rp25,000).
Cash
36 000 000
Common Stock
Paid-in Capital in Excess of
Stated Value
25 000 000
11 000 000
Issued 1,000 shares of nopar common at $36. Stated
value, $25.
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13-3
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Example Exercise 13-2
On March 6, Limerick Corporation issued for cash 15,000
shares of no-par common stock at Rp30,000. On April 13,
Limerick issued at par 1,000 shares of 4%, Rp40,000 par
preferred stock for cash. On May 19, Limerick issued for
cash 15,000 shares of 4%, Rp40,000 par preferred stock at
Rp42,000.
Journalize the entries to record the March 6, April 13, and
May 19 transactions.
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13-3
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Follow My Example 13-2
Mar. 6 Cash
Common Stock
(15,000 shares x Rp30,000)
Apr. 13 Cash
40,000,000
Preferred Stock
(1,000 shares x Rp40,000)
May 19 Cash
450,000,000
450,000,000
40,000,000
630,000,000
Preferred Stock
600,000,000
Paid-in Capital in Excess of Par
30,000,000
(15,000 shares x Rp42,000)
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For Practice: PE 13-2A, PE 13-2B
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Objective 4
13-4
Journalize the entries
for cash dividends and
stock dividends.
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Cash Dividends
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13-4
A cash distribution of earnings by a corporation
to its stockholders is called a cash dividend.
There are usually three conditions that a
corporation must meet to pay a cash dividend.
1. Sufficient retained earnings
2. Sufficient cash
3. Formal action by the board of directors
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Three Important Dividend Dates
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13-4
First is the date of declaration .
Assume that on December 1, PT
Herlambang declares a Rp42,500,000
dividend (Rp12,500,000 to the 5,000
preferred stockholders and
Rp30,000,000 to the 100,000
common stockholders).
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13-4
PT Herlambang records the Rp42,500,000
liability on the declaration date.
Dec. 1 Cash Dividends
Cash Dividends Payable
42 500 000
42 500 000
Declared cash dividend.
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Three Important Dividend Dates
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13-4
The second important date is
the date of record. For Hiber
Corporation this would be
December 10. No entry is
required since this date merely
determines which stockholders
will receive the dividend.
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Three Important Dividend Dates
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13-4
The third important date is the date of payment.
On January 2, PT Herlambang issues dividend
checks.
Jan. 2 Cash Dividends Payable
Cash
42 500 000
42 500 000
Paid cash dividend.
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13-4
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Example Exercise 13-3
The important dates in connection with a cash dividend of
Rp75,000,000 on a corporation’s common stock are
February 26, March 30, and April 2. Journalize the entries
required on each date.
Follow My Example 13-3
Feb. 26 Cash Dividends
Cash Dividends Payable
75,000,000
75,000,000
Mar. 30 No entry required.
Apr. 2 Cash Dividends Payable
Cash
For Practice: PE 13-3A, PE 13-3B
75,000,000
75,000,000
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Stock Dividends
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13-4
A distribution of dividends
to stockholders in the form
of the firm’s own shares is
called a stock dividend.
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13-4
On December 15, the board of
directors of PT Herlambang declares
a 5% stock dividend of 100,000
shares (2,000,000 shares x 5%) to be
issued on January 10 to stockholders
of record on December 31. The
market price on the declaration date is
Rp31,000 a share.
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13-4
The entry to record the declaration of the 5
percent stock dividend is as follows:
Dec. 15 Stock Dividend (100,000 x Rp31,000 market) 3,100 000 000
Stock Dividend Distributable
2,000 000 000
Paid-in Capital in Excess of
Par—Common Stock
1,100 000 000
Declared 5% (100,000 share)
stock dividend on Rp20,000 par
common stock with a market value
of Rp31,000 per share.
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13-4
On January 10, the number of shares outstanding is increased by 100,000. The
following entry records the issue of the stock:
Jan. 10 Stock Dividends Distributable
Common Stock
2,000 000 000
2,000 000 000
Issued stock for the stock
dividend.
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13-4
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Example Exercise 13-4
Vienna Highlights Corporation has 150,000 shares of
Rp100,000 par common stock outstanding. On June 14,
Vienna Highlights declared a 4% stock dividend to be
issued August 15 to stockholders of record on July 1. The
market price of the stock was Rp110,000 a share on June
14.
Journalize the entries required on June 14, July 1, and
August 15.
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13-4
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Follow My Example 13-4
June 14 Stock Dividends (150,000 x 4% x Rp110,000) 660,000,000
July
Stock Dividends Distributable
(6,000 x Rp100,000)
Paid-in Capital in Excess of Par—
Common Stock (Rp660,000,000
– Rp600,000,000)
1 No entry required.
Aug. 15 Stock Dividend Distributable
Common Stock
600,000,000
60,000,000
600,000,000
600,000,000
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For Practice: PE 13-4A, PE 13-4B
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Objective 5
13-5
Journalize the entries
for treasury stock
transactions.
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Treasury Stock Transactions
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13-5
Occasionally, a corporation buys
back its own stock to provide shares
for resale to employees, for reissuing
as a bonus to employees, or for
supporting the market price of the
stock. This stock is referred to as
treasury stock.
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13-5
On January 5, a firm purchased 1,000 shares of
treasury stock (common stock, Rp25,000 par)
at Rp45,000 per share. The cost method for
accounting for treasury stock is used.
Treasury Stock
Cash
45 000 000
45 000 000
Purchased 1,000 shares of
treasury stock at Rp45,000.
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13-5
Later, 200 shares of treasury stock were
sold for Rp60,000 per share.
Cash
12 000 000
Treasury Stock*
9 000 000
Paid-in Capital from Sale of
Treasury Stock
3 000 000
Sold 200 of treasury stock
at Rp60,000.
*The amount debited to Treasury Stock per share when purchased is
the amount per share that must be credited to that account when sold.
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13-5
Sold 200 shares of treasury stock at
Rp40,000 per share.
Cash
8 000 000
Paid-in Capital from Sale of
Treasury Stock
Treasury Stock
1 000 000
9 000 000
Sold 200 of treasury stock
at Rp40,000.
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13-5
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Example Exercise 13-5
On May 3, PT Budiraharja reacquired 3,200 shares
of its common stock at Rp42,000 per share. On
July 22, PT Budiraharja sold 2,000 of the
reacquired shares at Rp47,000 per share. On
August 30, PT Budiraharja sold the remaining
shares at Rp40,000 per share.
Journalize the transactions of May 3, July 22, and
August 30.
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13-5
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Follow My Example 13-5
May
3 Treasury Stock (3,200 x Rp42,000)
Cash
134,400,000
134,400,000
July 22 Cash (2,000 x Rp47,000)
94,000,000
Treasury Stock (2,000 x Rp42,000)
84,000,000
Paid-in Capital from Sale of Treasury
Stock [2,000 x (Rp47,000 – Rp42,000)]
10,000,000
Aug. 30 Cash (1,200 x Rp40,000)
Paid-in Capital from Sale of Treasury
Stock [1,200 x (Rp42,000 – Rp40,000)]
Treasury Stock (1,200 x Rp42,000)
48,000,000
2,400,000
50,400,000
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For Practice: PE 13-5A, PE 13-5B
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Objective 6
13-6
Describe and illustrate
the reporting of
stockholders’ equity.
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Stockholders’ Equity
Section of a Balance Sheet
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13-6
PT Tarumanegara
Balance Sheet
December 31, 2008
Stockholder's Equity
Paid-in Capital
Preferred 10% stock,
Rp50,000 par (2,000 shares
authorized and issued)
Excess of issue price over par
Common stock, Rp20,000 par
(50,000 shares authorized,
45,000 shares issued)
Excess of issue price over par
From sale of treasury stock
Total Paid-in capital
Retained earnings
Total
Deduct treasury stock (600 shares at cost)
Total stockholders equity
Rp100,000,000
10,000,000
Rp900,000,000
190,000,000
Rp110,000,000
1,090,000,000
2,000,000
Rp1,202,000,000
350,000,000
Rp1,552,000,000
27,000,000
Rp1,525,000,000
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13-6
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Example Exercise 13-6
Using the following accounts and balances, prepare the
Stockholders’ Equity section of the balance sheet. Forty
thousand shares of common stock are authorized and 5,000
shares have been reacquired.
Common Stock, Rp50,000 par Rp1,500,000,000
Paid-in Capital in Excess of Par
160,000,000
Paid-in Capital from Sale of
Treasury Stock
44,000,000
Retained Earnings
4,395,000,000
Treasury Stock
120,000,000
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13-6
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Follow My Example 13-6
Stockholders’ Equity
Paid-in capital:
Common stock, Rp50,000 par
(40,000 shares authorized,
30,000 shares issued)
Excess of issue price over par
Rp1,500,000,000
160,000,000
Rp1,660,000,000
From sale of treasury stock
44,000,000
Total paid-in capital
Rp1,704,000,000
Retained earnings
4,395,000,000
Total
Rp6,099,000,000
Deduct treasury stock (5,000 shares at cost)
120,000,000
Total stockholders’ equity
Rp5,979,000,000 67
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For Practice: PE 13-6A, PE 13-6B
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Retained Earnings
Statement
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13-6
PT Tarumanegara
Retained Earnings Statement
For the Year Ended December 31, 2008
Retained earnings, January 1, 2008
Net Income
Less dividens:
Preferred stock
Rp10,000,000
Common stock
65,000,000
Increase in retained earnings
Retained earnings, December 31, 2008
Rp245,000,000
Rp180,000,000
75,000,000
105,000,000
Rp350,000,000
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Restrictions
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13-6
The retained earnings available for use
as dividends may be limited by the
actions of a corporation’s board of
directors. These amounts, called
restrictions or appropriations, remain
part of the retained earnings.
However, they must be disclosed,
usually in the notes to the financial
statements.
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Statement of
Stockholders’ Equity
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13-6
PT Tarumanegara
Statement of Stockholder's Equity
For the Year Ended December 31, 2008
Balance, January 1, 2008
Net Income
Dividens on preferred stock
Dividens on common stock
Issuance of additional
common stock
Purchase of treasury stock
Balance, December 31, 2008
Preferred
Stock
Rp100,000,000
Rp100,000,000
Common
Stock
Rp850,000,000
Additional
Paid-in
Capital
Rp177,000,000
50,000,000
25,000,000
Rp900,000,000
Rp202,000,000
Retained
Earnings
Rp245,000,000
180,000,000
(10,000,000)
(65,000,000)
Rp350,000,000
Treasury
Stock
Rp(17,000,000)
(10,000,000)
Rp(27,000,000)
Total
Rp1,355,000,000
180,000,000
(10,000,000)
(65,000,000)
75,000,000
(10,000,000)
Rp1,525,000,000
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13-6
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Example Exercise 13-7
PT Kamera Jakarta. reported the following results for the
year ending March 31, 2008:
Retained earnings, April 1, 2007 Rp3,338,500,000
Net income
461,500,000
Cash dividends declared
80,000,000
Stock dividends declared
120,000,000
Prepare a retained earnings statement for the fiscal year
ended March 31, 2008.
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13-6
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Follow My Example 13-7
PT KAMERA JAKARTA
RETAINED EARNINGS STATEMENT
For the Year Ended March 31, 2008
Retained earnings, April 1, 2007
Rp3,338,500,000
Net income
Rp461,500,000
Less dividends declared
200,000,000
Increase in retained earnings
261,500,000
Retained earnings, March 31, 2008
Rp3,600,000,000
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For Practice: PE 13-6A, PE 13-6B
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Objective 7
13-7
Describe the effect of
stock splits on
corporate financial
statements.
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Stock Splits
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13-7
A corporation sometimes
reduces the par or stated value
of their common stock and
issues a proportionate number
of additional shares. This
process is called a stock split.
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13-7
PT Rojali has 10,000 shares
of Rp100,000 par common
stock outstanding with a
current market price of
Rp150,000 per share. The
board of directors declares a
5-for-1 stock split.
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BEFORE
STOCK SPLIT
13-7
AFTER 5:1
STOCK SPLIT
4 shares, Rp100,000 par
20 shares, Rp20,000 par
$400 total par value
$400 total par value
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13-7
Since a stock split changes only the
par or stated value and the number of
shares outstanding, it is not recorded
by a journal entry. The details of the
stock split are normally disclosed in
the notes to the financial statements.
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Adeng Pustikaningsih, M.Si.
Dosen Jurusan Pendidikan Akuntansi
Fakultas Ekonomi
Universitas Negeri Yogyakarta
CP: 08 222 180 1695
Email : adengpustikaningsih@uny.ac.id
1
2
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Corporations:
Organization, Stock
Transactions, and
Dividends
2
3
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After studying this chapter, you should
be able to:
1. Describe the nature of the corporate
form of organization.
2. Describe the two main sources of
stockholders’ equity.
3. Describe and illustrate the
characteristics of stock, classes of
stock, and entries for issuing stock.
3
4
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After studying this chapter, you should
be able to:
4. Journalize the entries for cash
dividends and stock dividends.
5. Journalize the entries for treasury
stock transactions.
6. Describe and illustrate the reporting
of stockholders’ equity.
7. Describe the effect of stock splits on
corporate financial statements.
4
5
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Objective 1
13-1
Describe the nature of
the corporate form of
organization.
5
6
Characteristics of a Corporation
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13-1
A corporation is a legal entity,
distinct and separate from the
individuals who create and operate
it. As a legal entity, a corporation
may acquire, own, and dispose of
property in its own name.
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7
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13-1
The stockholders or
shareholders who own the stock
own the corporation.
Corporations whose shares of
stock are traded in public markets
are called public corporations.
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8
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13-1
Corporations whose shares are not
traded publicly are usually owned by
a small group of investors and are
called nonpublic or private
corporations. The stockholders of all
corporation have limited liability.
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13-1
The stockholders control a
corporation by electing a board of
directors and board of
Commissioners. The board meets
periodically to establish corporate
policy. It also selects the chief
executive officer (CEO) and other
major officers.
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Organizational Structure of a Corporation in Indonesia
13-1
Stockholders
Board of Directors
Board of Commissioners
Officers
Employees
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Advantages of the Corporate Form
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13-1
A corporation exists separately from its
owners.
A corporation’s life is separate from its
owners; therefore, it exists indefinitely.
The corporate form is suited for raising
large amounts of money from
stockholders.
(Continued)
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Advantages of the Corporate Form
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13-1
A corporation sells shares of
ownership, called stock. Stockholders
can transfer their shares of stock to
other stockholders.
A corporation’s creditors usually may
not go beyond the assets of the
corporation to satisfy their claims.
(Concluded)
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Disadvantages of the
Corporate Form
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Stockholders control management
through a board of directors (in
Indonesia, troughs a board of
commissioners).
As a separate legal entity, the corporation
is subject to taxation. Thus, net income
distributed as dividends will be taxed at
both the corporate and individual levels.
Corporations must satisfy many
regulatory requirements.
13-1
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Forming a Corporation In
Indonesia
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13-1
• First step, the founders need to check if their
proposed name of the company has not been used by
other.
• Second step, All founders need to sign the Deed of
Establishment before a public notary.
• Third step, the public notary then will file application
of establishment with the Minister of Law and
Human Rights. This process can be done on-line, but
only public notary have access to the web site.
• Fourth step, such establishment and ratification will
then be published in the Supplement to State Gazette
of the Republic of Indonesia.
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Examples of Corporations
and Their States of
Incorporation
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13-1
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Organization Structure of a Corporation
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13-1
Costs may be incurred in organizing a
corporation. The recording of a corporation’s
organizing costs of Rp8,500,000 on January 5 is
shown below:
Jan. 5 Organizational Expense
Cash
8 500 000
8 500 000
Paid costs of organizing
the corporation.
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17
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Objective 2
13-2
Describe the two main
sources of
stockholders’ equity.
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13-2
The owner’s equity in a corporation
is called stockholders’ equity,
shareholders’ equity, shareholders’
investment, or capital.
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Stockholders’ Equity
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13-2
The two sources of capital found in
the Stockholders’ Equity section of a
balance sheet are paid-in capital or
contributed capital (capital
contributed to the corporation by
stockholders and others) and
retained earnings (net income
retained in the business).
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Stockholders’ Equity Section of a
Corporate Balance Sheet
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13-2
Stockholders’ Equity
Paid-in capital:
Common stock
Rp330,000,000
Retained earnings
80,000,000
Total stockholders’ equity
Rp410,000,000
If there is only one class of stock, the
account is entitled Common Stock or
Capital Stock.
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13-2
A debit balance in Retained
Earnings is called a deficit.
Such a balance results from
accumulated net losses.
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Objective 3
13-3
Describe and illustrate the
characteristics of stock,
classes of stock, and
entries for issuing stock.
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Characteristics of Stock
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13-3
The number of shares of stock that a
corporation is authorized to issue is
stated in the charter. A corporation
may reacquire some of the stock that
has been issued. The stock remaining
in the hands of stockholders is then
called outstanding stock.
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13-3
Shares of stock are often assigned a
monetary amount, called par.
Corporations may issue stock
certificates to stockholders to document
their ownership. Some corporations
have stopped issuing stock certificates
except on special request.
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13-3
Stock issued without a par is called
no-par stock. Some states require the
board of directors to assign a stated
value to no-par stock.
Some state laws require that
corporations maintain a minimum
stockholder contribution, called legal
capital, to protect creditors.
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Number of Shares Authorized,
Issued, and Outstanding
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13-3
Outstanding
Issued
Outstanding
Authorized
Issued
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Major Rights That Accompany
Ownership of a Share of Stock
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13-3
1. The right to vote in matters
concerning the corporation.
2. The right to share in distributions
of earnings.
3. The right to share in assets on
liquidation.
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Two Primary Classes of Paid-In Capital
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13-3
The two primary classes of paid-in
capital are common stock and
preferred stock. The primary
attractiveness of preferred stocks is
that they are preferred over common
as to dividends.
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13-3
A corporation has 1,000 shares of Rp4,000 preferred
stock and 4,000 shares of common stock
outstanding. The net income, amount of earnings
retained, and the amount of earnings distributed are
as follows:
2006
Net income
Amount retained
Amount distributed
Rp22,000,000
2007
2008
Rp20,000,000 Rp9,000,000 Rp62,000,000
10,000,000
6,000,000
40,000,000
Rp10,000,000 Rp3,000,000
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Dividends to Common
and Preferred Stock
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Amount distributed
Preferred dividen (1,000 shares)
Common dividend (4,000 shares)
Dividends per share:
Preferred stock
Common stock
2006
Rp10,000,000
4,000,000
6,000,000
2007
Rp3,000,000
3,000,000
0
2008
Rp22,000,000
4,000,000
18,000,000
Rp4,000
Rp1,500
Rp3,000
none
Rp4,000
Rp4500
13-3
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13-3
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Example Exercise 13-1
PT Cahaya Sakti has stock 20,000 shares of 1% preferred
stock of Rp100,000 par and 100,000 shares of Rp50,000 par
common stock. The following amounts were distributed as
dividends:
Year 1: Rp10,000,000
Year 2: 25,000,000
Year 3: 80,000,000
Determine the dividends per share for preferred and
common stock for each year.
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13-3
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Follow My Example 13-1
Year 1
Amount distributed
Preferred dividend (20,000
shares)
Common dividend (100,000
shares)
Dividends per share:
Preferred
Common stock
Year 2
Year 3
Rp10,000,000 Rp25,000,000 Rp80,000,000
10,000,000
Rp
0
Rp500
None
For Practice: PE 13-1A, PE 13-1B
20,000,000
20,000,000
Rp 5,000,000 Rp60,000,000
Rp1,000
Rp500
Rp1,000
Rp600
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Issuing Stock
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13-3
A corporation is authorized to issue 10,000 shares of
preferred stock, Rp100,000 par, and 100,000 shares
of common stock, Rp20,000 par. One-half of each
class of authorized shares is issued at par for cash.
Cash
Preferred Stock
Common Stock
Issued preferred stock and
1 500 000 000
500 000 000
1 000 000 000
common stock at par for cash.
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13-3
When a stock is issued for a
price that is more than its
par, the stock has sold at a
premium. When stock is
issued for a price that is less
than its par, the stock has
sold at a discount.
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Premium on Stock
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13-3
PT Cahaya Cemerlang issues 2,000 shares of
Rp50,000 par preferred stock for cash at Rp55,000.
Cash
Preferred Stock
110 000 000
100 000 000
Paid-in Capital in Excess of
Par—Preferred Stock
Issued Rp50,000 par
preferred stock at Rp55,000.
10 000 000
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13-3
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A corporation acquired land for which the fair market
value cannot be determined. The corporation issued
10,000 shares of Rp10,000 par common that has a current
market value of Rp12,000 in exchange for the land.
Land
120 000 000
Common Stock
Paid-in Capital in Excess of Par
100 000 000
20 000 000
Issued Rp10,000 par common
stock valued at Rp12,000 per
share, for land.
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No-Par Stock
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13-3
A corporation issues 10,000 shares of nopar common stock at Rp40,000 a share.
Cash
Common Stock
Issued 10,000 shares of nopar common stock at
Rp40,000.
400 000 000
400 000 000
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36
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13-3
At a later date, the corporation issues
1,000 additional shares at Rp36,000.
Cash
36 000 000
Common Stock
Issued 1,000 shares of no-par
36 000 000
common stock at Rp36,000.
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Stated Value
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13-3
Some states require that the
entire proceeds from the issue
of no-par stock be recorded as
legal capital. In other states,
no-par stock may be assigned
a stated value per share.
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Stated Value
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13-3
Using the same data as we used for par the
transaction is recorded as follows:
Cash
400 000 000
Common Stock
Paid-in Capital in Excess of
Stated Value
250 000 000
150 000 000
Issued 10,000 shares of nopar common at Rp40,000.
Stated value, Rp25,000.
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13-3
The corporation issued 1,000 shares of no-par
common stock at Rp36,000 (stated value, Rp25,000).
Cash
36 000 000
Common Stock
Paid-in Capital in Excess of
Stated Value
25 000 000
11 000 000
Issued 1,000 shares of nopar common at $36. Stated
value, $25.
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13-3
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Example Exercise 13-2
On March 6, Limerick Corporation issued for cash 15,000
shares of no-par common stock at Rp30,000. On April 13,
Limerick issued at par 1,000 shares of 4%, Rp40,000 par
preferred stock for cash. On May 19, Limerick issued for
cash 15,000 shares of 4%, Rp40,000 par preferred stock at
Rp42,000.
Journalize the entries to record the March 6, April 13, and
May 19 transactions.
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13-3
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Follow My Example 13-2
Mar. 6 Cash
Common Stock
(15,000 shares x Rp30,000)
Apr. 13 Cash
40,000,000
Preferred Stock
(1,000 shares x Rp40,000)
May 19 Cash
450,000,000
450,000,000
40,000,000
630,000,000
Preferred Stock
600,000,000
Paid-in Capital in Excess of Par
30,000,000
(15,000 shares x Rp42,000)
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For Practice: PE 13-2A, PE 13-2B
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Objective 4
13-4
Journalize the entries
for cash dividends and
stock dividends.
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Cash Dividends
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13-4
A cash distribution of earnings by a corporation
to its stockholders is called a cash dividend.
There are usually three conditions that a
corporation must meet to pay a cash dividend.
1. Sufficient retained earnings
2. Sufficient cash
3. Formal action by the board of directors
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Three Important Dividend Dates
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13-4
First is the date of declaration .
Assume that on December 1, PT
Herlambang declares a Rp42,500,000
dividend (Rp12,500,000 to the 5,000
preferred stockholders and
Rp30,000,000 to the 100,000
common stockholders).
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13-4
PT Herlambang records the Rp42,500,000
liability on the declaration date.
Dec. 1 Cash Dividends
Cash Dividends Payable
42 500 000
42 500 000
Declared cash dividend.
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Three Important Dividend Dates
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13-4
The second important date is
the date of record. For Hiber
Corporation this would be
December 10. No entry is
required since this date merely
determines which stockholders
will receive the dividend.
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Three Important Dividend Dates
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13-4
The third important date is the date of payment.
On January 2, PT Herlambang issues dividend
checks.
Jan. 2 Cash Dividends Payable
Cash
42 500 000
42 500 000
Paid cash dividend.
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13-4
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Example Exercise 13-3
The important dates in connection with a cash dividend of
Rp75,000,000 on a corporation’s common stock are
February 26, March 30, and April 2. Journalize the entries
required on each date.
Follow My Example 13-3
Feb. 26 Cash Dividends
Cash Dividends Payable
75,000,000
75,000,000
Mar. 30 No entry required.
Apr. 2 Cash Dividends Payable
Cash
For Practice: PE 13-3A, PE 13-3B
75,000,000
75,000,000
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Stock Dividends
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13-4
A distribution of dividends
to stockholders in the form
of the firm’s own shares is
called a stock dividend.
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13-4
On December 15, the board of
directors of PT Herlambang declares
a 5% stock dividend of 100,000
shares (2,000,000 shares x 5%) to be
issued on January 10 to stockholders
of record on December 31. The
market price on the declaration date is
Rp31,000 a share.
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13-4
The entry to record the declaration of the 5
percent stock dividend is as follows:
Dec. 15 Stock Dividend (100,000 x Rp31,000 market) 3,100 000 000
Stock Dividend Distributable
2,000 000 000
Paid-in Capital in Excess of
Par—Common Stock
1,100 000 000
Declared 5% (100,000 share)
stock dividend on Rp20,000 par
common stock with a market value
of Rp31,000 per share.
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13-4
On January 10, the number of shares outstanding is increased by 100,000. The
following entry records the issue of the stock:
Jan. 10 Stock Dividends Distributable
Common Stock
2,000 000 000
2,000 000 000
Issued stock for the stock
dividend.
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13-4
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Example Exercise 13-4
Vienna Highlights Corporation has 150,000 shares of
Rp100,000 par common stock outstanding. On June 14,
Vienna Highlights declared a 4% stock dividend to be
issued August 15 to stockholders of record on July 1. The
market price of the stock was Rp110,000 a share on June
14.
Journalize the entries required on June 14, July 1, and
August 15.
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13-4
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Follow My Example 13-4
June 14 Stock Dividends (150,000 x 4% x Rp110,000) 660,000,000
July
Stock Dividends Distributable
(6,000 x Rp100,000)
Paid-in Capital in Excess of Par—
Common Stock (Rp660,000,000
– Rp600,000,000)
1 No entry required.
Aug. 15 Stock Dividend Distributable
Common Stock
600,000,000
60,000,000
600,000,000
600,000,000
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For Practice: PE 13-4A, PE 13-4B
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Objective 5
13-5
Journalize the entries
for treasury stock
transactions.
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Treasury Stock Transactions
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13-5
Occasionally, a corporation buys
back its own stock to provide shares
for resale to employees, for reissuing
as a bonus to employees, or for
supporting the market price of the
stock. This stock is referred to as
treasury stock.
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13-5
On January 5, a firm purchased 1,000 shares of
treasury stock (common stock, Rp25,000 par)
at Rp45,000 per share. The cost method for
accounting for treasury stock is used.
Treasury Stock
Cash
45 000 000
45 000 000
Purchased 1,000 shares of
treasury stock at Rp45,000.
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13-5
Later, 200 shares of treasury stock were
sold for Rp60,000 per share.
Cash
12 000 000
Treasury Stock*
9 000 000
Paid-in Capital from Sale of
Treasury Stock
3 000 000
Sold 200 of treasury stock
at Rp60,000.
*The amount debited to Treasury Stock per share when purchased is
the amount per share that must be credited to that account when sold.
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13-5
Sold 200 shares of treasury stock at
Rp40,000 per share.
Cash
8 000 000
Paid-in Capital from Sale of
Treasury Stock
Treasury Stock
1 000 000
9 000 000
Sold 200 of treasury stock
at Rp40,000.
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13-5
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Example Exercise 13-5
On May 3, PT Budiraharja reacquired 3,200 shares
of its common stock at Rp42,000 per share. On
July 22, PT Budiraharja sold 2,000 of the
reacquired shares at Rp47,000 per share. On
August 30, PT Budiraharja sold the remaining
shares at Rp40,000 per share.
Journalize the transactions of May 3, July 22, and
August 30.
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13-5
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Follow My Example 13-5
May
3 Treasury Stock (3,200 x Rp42,000)
Cash
134,400,000
134,400,000
July 22 Cash (2,000 x Rp47,000)
94,000,000
Treasury Stock (2,000 x Rp42,000)
84,000,000
Paid-in Capital from Sale of Treasury
Stock [2,000 x (Rp47,000 – Rp42,000)]
10,000,000
Aug. 30 Cash (1,200 x Rp40,000)
Paid-in Capital from Sale of Treasury
Stock [1,200 x (Rp42,000 – Rp40,000)]
Treasury Stock (1,200 x Rp42,000)
48,000,000
2,400,000
50,400,000
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For Practice: PE 13-5A, PE 13-5B
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Objective 6
13-6
Describe and illustrate
the reporting of
stockholders’ equity.
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Stockholders’ Equity
Section of a Balance Sheet
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13-6
PT Tarumanegara
Balance Sheet
December 31, 2008
Stockholder's Equity
Paid-in Capital
Preferred 10% stock,
Rp50,000 par (2,000 shares
authorized and issued)
Excess of issue price over par
Common stock, Rp20,000 par
(50,000 shares authorized,
45,000 shares issued)
Excess of issue price over par
From sale of treasury stock
Total Paid-in capital
Retained earnings
Total
Deduct treasury stock (600 shares at cost)
Total stockholders equity
Rp100,000,000
10,000,000
Rp900,000,000
190,000,000
Rp110,000,000
1,090,000,000
2,000,000
Rp1,202,000,000
350,000,000
Rp1,552,000,000
27,000,000
Rp1,525,000,000
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13-6
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Example Exercise 13-6
Using the following accounts and balances, prepare the
Stockholders’ Equity section of the balance sheet. Forty
thousand shares of common stock are authorized and 5,000
shares have been reacquired.
Common Stock, Rp50,000 par Rp1,500,000,000
Paid-in Capital in Excess of Par
160,000,000
Paid-in Capital from Sale of
Treasury Stock
44,000,000
Retained Earnings
4,395,000,000
Treasury Stock
120,000,000
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13-6
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to
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Follow My Example 13-6
Stockholders’ Equity
Paid-in capital:
Common stock, Rp50,000 par
(40,000 shares authorized,
30,000 shares issued)
Excess of issue price over par
Rp1,500,000,000
160,000,000
Rp1,660,000,000
From sale of treasury stock
44,000,000
Total paid-in capital
Rp1,704,000,000
Retained earnings
4,395,000,000
Total
Rp6,099,000,000
Deduct treasury stock (5,000 shares at cost)
120,000,000
Total stockholders’ equity
Rp5,979,000,000 67
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For Practice: PE 13-6A, PE 13-6B
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Retained Earnings
Statement
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13-6
PT Tarumanegara
Retained Earnings Statement
For the Year Ended December 31, 2008
Retained earnings, January 1, 2008
Net Income
Less dividens:
Preferred stock
Rp10,000,000
Common stock
65,000,000
Increase in retained earnings
Retained earnings, December 31, 2008
Rp245,000,000
Rp180,000,000
75,000,000
105,000,000
Rp350,000,000
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Restrictions
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13-6
The retained earnings available for use
as dividends may be limited by the
actions of a corporation’s board of
directors. These amounts, called
restrictions or appropriations, remain
part of the retained earnings.
However, they must be disclosed,
usually in the notes to the financial
statements.
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Statement of
Stockholders’ Equity
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13-6
PT Tarumanegara
Statement of Stockholder's Equity
For the Year Ended December 31, 2008
Balance, January 1, 2008
Net Income
Dividens on preferred stock
Dividens on common stock
Issuance of additional
common stock
Purchase of treasury stock
Balance, December 31, 2008
Preferred
Stock
Rp100,000,000
Rp100,000,000
Common
Stock
Rp850,000,000
Additional
Paid-in
Capital
Rp177,000,000
50,000,000
25,000,000
Rp900,000,000
Rp202,000,000
Retained
Earnings
Rp245,000,000
180,000,000
(10,000,000)
(65,000,000)
Rp350,000,000
Treasury
Stock
Rp(17,000,000)
(10,000,000)
Rp(27,000,000)
Total
Rp1,355,000,000
180,000,000
(10,000,000)
(65,000,000)
75,000,000
(10,000,000)
Rp1,525,000,000
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13-6
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Example Exercise 13-7
PT Kamera Jakarta. reported the following results for the
year ending March 31, 2008:
Retained earnings, April 1, 2007 Rp3,338,500,000
Net income
461,500,000
Cash dividends declared
80,000,000
Stock dividends declared
120,000,000
Prepare a retained earnings statement for the fiscal year
ended March 31, 2008.
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13-6
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Follow My Example 13-7
PT KAMERA JAKARTA
RETAINED EARNINGS STATEMENT
For the Year Ended March 31, 2008
Retained earnings, April 1, 2007
Rp3,338,500,000
Net income
Rp461,500,000
Less dividends declared
200,000,000
Increase in retained earnings
261,500,000
Retained earnings, March 31, 2008
Rp3,600,000,000
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For Practice: PE 13-6A, PE 13-6B
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Objective 7
13-7
Describe the effect of
stock splits on
corporate financial
statements.
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Stock Splits
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13-7
A corporation sometimes
reduces the par or stated value
of their common stock and
issues a proportionate number
of additional shares. This
process is called a stock split.
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13-7
PT Rojali has 10,000 shares
of Rp100,000 par common
stock outstanding with a
current market price of
Rp150,000 per share. The
board of directors declares a
5-for-1 stock split.
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BEFORE
STOCK SPLIT
13-7
AFTER 5:1
STOCK SPLIT
4 shares, Rp100,000 par
20 shares, Rp20,000 par
$400 total par value
$400 total par value
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13-7
Since a stock split changes only the
par or stated value and the number of
shares outstanding, it is not recorded
by a journal entry. The details of the
stock split are normally disclosed in
the notes to the financial statements.
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