Financial Statements (Ch 3)
Equity (Chapter 10)
We use adjusted consolidated segment operating income, or Adjusted CSOI, and free cash flow as key non-GAAP financial measures. Adjusted CSOI and free cash flow are used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures.
Presents companies’ stock of assets, liabilities, and equity
While taxes are always included, you will not be asked to calculate taxes for this course. If no taxes are mentioned, assume they are 0.
You won’t be required to construct this statement for exams.
There is an Excel file on eLearn with the adjusted trial balances for 20X8 and 20X9.
Equity:
Debt:
Advantages
Disadvantages
Public
Private
Ordinary shares
Preferred shares
Voting
Dividends
Liquidation
Limited liability
How shareholders protect themselves
Situation: The company issued 1 million ordinary shares at $15 each.
Situation: 1) The company issued 1 million ordinary shares at $15 each with par value of $15.
2) The company issued 1 million ordinary shares at $15 each with par value of $1.
Situation: The company issued 1 million preferred shares at $15 each.
We almost always treat preferred shares as equity
The exception (IAS 32) is for redeemable shares with fixed redemption date and fixed dividend payments
Backup link: https://rmc.link/101class3backup
Situation: The company purchased 20,000 shares at $20 each, and then retired them.
Treasury shares: contra equity account, decreasing equity
Situation: The company purchased 20,000 shares at $20 each, and then sold them in 2 transactions: 10,000 for $25 each and 10,000 for $15 each.
Situation: The company purchased 20,000 shares at $20 each, and then sold them in 2 transactions: 10,000 for $15 each and 10,000 for $25 each.
“Profit” from treasury shares
“Losses” from treasury shares
All treasury shares transactions are based on actual amounts paid (market value)
Situation: The company purchased 20,000 shares at $20 each, and then sold them in 3 transactions: 5,000 for $15 each, 5,000 for $26 each, and 10,000 for $18 each.
Situation: declared $0.10 per share of dividends on Jan 1, with record date of Jan 15 and payment date of Jan 30. 100,000 shares are outstanding.
Situation: declared 0.05 shares per share as a share dividend on Jan 1. 100,000 shares are outstanding with a market value of $10 each.
Transaction | Asset (↑=DR) | Liability (↑=CR) | Equity (↑=CR) |
---|---|---|---|
Issue shares | ↑ | – | ↑ |
Purchase treasury shares | ↓ | – | ↓ |
Sell treasury shares | ↑ | – | ↑ |
Declare dividends | – | ↑ | ↓ |
Pay dividends | ↓ | ↓ | – |
Issue share dividends | – | – | – |
Stock split | – | – | – |
Caffeine & Co had 50,000 shares outstanding as of Jan 1, 20X8. The following transactions occurred throughout the year. Prepare the journal entries for each transaction.