Shareholders Equity

1
Shareholders Equity

• Chapter Eleven

2
Shares

• Authorized shares
• Number approved for issue in the articles of
  incorporation
• Issued shares
• Number that have been sold (issued) by the company

3
Shares

• Outstanding shares
• Number that remain in the possession of
  shareholders outside the company

4
Property Dividends

• Dividend declared that will be settled with some
  resource other than cash
• Also known as dividends in kind
• Valued at fair market value

5
Stock Dividends

• Additional shares of the company are issued
  instead of cash or property
• Issuance does not alter the overall value of the
  company

6
Stock Dividends

• Example
• Company has 100 shares outstanding, owned equally
  by 10 people
• A 10 stock dividend is issued
• Each shareholder receives 1 new share, resulting
  in 110 shares outstanding

7
Stock Dividends

• Why issue stock dividends?
• Shareholder may be better off
• Market adjusts the value of the shares
• Company is able to capitalize its retained
  earnings

8
Stock Dividends

• Fair market value at date of declaration is used
• Declaration
• SE-Dividends declared xx
• SE-Stock dividends issuable xx
• Issuance
• SE-Stock dividends issuable xx
• SE-Common shares xx
• Closed to Retained Earnings

9
Stock Splits

• Usually stated as a ratio
• Example A two-for-one stock split
• Each share currently held is exchanged for two
  new shares
• Number of shares outstanding is doubled
• No change in dollar amounts of any shareholders
  equity account

10
Stock Options

• An agreement between two parties to either buy or
  sell a share at a fixed price at some future date
• Exercise price the fixed price