Learning Objectives
After studying the material in this chapter you will
be able to do the following:
LO1
Recognize the differences among proprietorships,
partnerships, corporations, and not-for-profit
organizations and be familiar with accounting and
reporting differences among these different types of
entities.
LO2
Characterize equity and the different types of equity
securities, and explain the accounting for the issuance and
repurchase of shares.
LO3
Describe the transactions and economic events affecting
retained earnings, accumulated other comprehensive
income, and contributed surplus.
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LO3
Retained Earnings
• All profits less dividends declared over life of
corporation
• Profits reinvested into corporation
• Represents indirect investment by
shareholders
• Usually no direct entries to retained earnings
(limited exceptions)
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LO3
Retained Earnings
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LO3
Dividends
• Distribution of profits to shareholders
• Are discretionary and must be declared
• All shareholders of a class receive the same
amount per share
• Not expensed for accounting or tax purposes
• Can be cash, property or stock
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LO3
Dividends
• When declared, classified as a liability
• 3 important dates
▫ Date of declaration
▫ Date of record
▫ Date of payment
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LO3
Stock Dividends
• Issuance of a stock dividend:
▫ Each shareholder receives additional shares
▫ Percentage ownership remains constant
▫ Decrease retained earnings account increase
common shares account
▫ Measured at market value just before issuance 0r
assigned value by board of directors
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LO3
Stock Splits
Declaration of a stock split:
▫ Divides an entity’s shares into a larger number of
units
▫ Like a large stock dividend
▫ No accounting entries made
▫ Reduces stock price in proportion
▫ Makes shares more affordable
▫ No real economic significance
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LO3
Comprehensive Income
• Comprehensive income
▫ An all inclusive measure of performance
▫ A change in equity from transactions and
economic events that do not include owners
▫ Two parts
• Net income
• Other comprehensive income (OCI)
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LO3
Comprehensive Income
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LO3
Other Comprehensive Income
• Revenues, expenses, gains and losses not
included in net income calculation including:
▫ Gains and losses on:
• Pensions and post-retirement benefits
• Certain investment securities
• Translation of companies owned that are stated
in foreign currencies
• Gains from writing up property, plant, and
equipment if elected under IFRS
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LO3
Contributed Surplus
• Captures other equity transactions:
▫ Amounts paid for company shares in excess of
par value
▫ Receipt of donated assets
▫ Equity component of some hybrid securities
▫ Repurchase of shares for more than average
per share cost
▫ Employees’ stock-based compensation
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Shareholders Equity - Summary
LO3
• The statement of shareholders’ equity
provides a summary of changes in equity
accounts
• Divides shareholders’ equity into:
▫
▫
▫
▫
Share capital
Contributed surplus
Retained Earnings
Accumulated OCI
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