Page 543 - Accounting Principles (A Business Perspective)

13. Corporations: Paid-in capital, retained earnings, dividends, and treasury stock

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Key terms
Cash dividends Cash distributions of accumulated earnings by a corporation to its stockholders.
Changes in accounting principle Changes in accounting methods pertaining to such items as inventory.
Contributed capital See paid-in capital.
Date of declaration (of dividends) The date the board of directors takes action in the form of a motion
that dividends be paid.
Date of payment (of dividends) The date of actual payment of a dividend, or issuance of additional
shares for a stock dividend.
Date of record (of dividends) The date of record established by the board that determines the
stockholders who will receive dividends.
Deficit A debit balance in the Retained Earnings account.
Discontinued operation When a segment of a business is sold to another company or is abandoned.
Dividends Distribution of earnings by a corporation to its stockholders.
Dividends (cash) See cash dividends.
Dividends (stock) See stock dividends.
Donated capital Results from donation of assets to the corporation, which increases stockholders' equity.
Earnings per share (EPS) Earnings to the common stockholders on a per share basis, computed as
income available to common stockholders divided by the weighted-average number of common shares
outstanding.
Extraordinary items Items both unusual in nature and infrequent in occurrence; reported in the income
statement net of their tax effects, if any.
Income available to common stockholders Net income less any dividends on preferred stock.
Liquidating dividends Dividends that are a return of contributed capital, not a distribution chargeable to
retained earnings.
Net-of-tax effect Used for discontinued operations, extraordinary items, changes in accounting principle,
and prior period adjustments, whereby items are shown at the dollar amounts remaining after deducting the
effects of such items on income taxes, if any, payable currently.
Paid-in capital All of the contributed capital of a corporation, including that carried in capital stock
accounts. When the words paid-in capital are included in the account title, the account contains capital
contributed in addition to that assigned to the shares issued and recorded in the capital stock accounts.
Paid-In Capital—Common (Preferred) Treasury Stock Transactions The account credited when
treasury stock is reissued for more than its cost; this account is debited to the extent of its credit balance
when such shares are reissued at less than cost.
Price-earnings ratio The current market price per share of common stock divided by EPS.
Prior period adjustments Consist almost entirely of corrections of errors in previously published
financial statements. Prior period adjustments are reported in the statement of retained earnings net of their
tax effects, if any.
Retained earnings That part of stockholders' equity resulting from accumulated earnings; the account to
which the results of corporate activity, including prior period adjustments, are carried and to which
dividends and certain items resulting from capital transactions are charged.
Retained earnings appropriations Contractual or voluntary restrictions or limitations on retained
earnings that reduce the amount of dividends that may be declared.
Statement of retained earnings A formal statement showing the items causing changes in
unappropriated and appropriated retained earnings during a stated period of time.
Statement of stockholders' equity A summary of the transactions affecting the accounts in the
stockholders' equity section of the balance sheet during a stated period of time.
Stock Dividend Distributable—Common account The stockholders' equity (paid-in capital) account
that is credited for the par or stated value of the shares distributable when recording the declaration of a
stock dividend.
Stock dividends Dividends that are payable in additional shares of the declaring corporation's capital
stock.

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