war22ech13 corporations organization stock transactions and dividends revisi

(1)

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Adeng Pustikaningsih, M.Si.

Dosen Jurusan Pendidikan Akuntansi Fakultas Ekonomi

(2)

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Corporations:

Organization, Stock

Transactions, and

Dividends

(3)

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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

(4)

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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

(5)

Describe the nature of

the corporate form of

organization.

Objective 1

(6)

13-1

Characteristics of a Corporation

A

corporation

is a legal entity,

distinct and separate from the

individuals who create and operate

it. As a legal entity, a corporation

(7)

13-1

The

stockholders

or

shareholders

who own the stock

own the corporation.

Corporations whose shares of

stock are traded in public markets

(8)

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

.

(9)

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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

(10)

Stockholders

Board of Commissioners Board of Directors

Officers

(11)

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13-1

Advantages of the Corporate Form



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

(12)

13-1

Advantages of the Corporate Form



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

(13)

13-1

Disadvantages of the Corporate Form



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.

(14)

• 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

Forming a Corporation In Indonesia

(15)

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Examples of Corporations 13-1 and Their States of

(16)

13-1

Organization Structure of a Corporation

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 8 500 000

Cash 8 500 000

(17)

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Describe the two main

sources of

Objective 2

(18)

13-2

The owner’s equity in a corporation

is called

stockholders’ equity

,

shareholders’ equity

,

shareholders’

(19)

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).

(20)

13-2

Stockholders’ Equity Section of a Corporate Balance Sheet

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

(21)

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13-2

A debit balance in

Retained

Earnings

is called a

deficit

.

Such a balance results from

(22)

Describe and illustrate the

characteristics of stock,

classes of stock, and

entries for issuing stock.

Objective 3

(23)

Characteristics of Stock 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

(24)

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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

(25)

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

(26)

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Authorized

13-3

Number of Shares Authorized, Issued, and Outstanding

Issued Outstanding

(27)

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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.

13-3

(28)

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.

13-3

(29)

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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:

Net income Rp20,000,000 Rp9,000,000 Rp62,000,000 Amount retained 10,000,000 6,000,000 40,000,000

Amount distributed Rp10,000,000 Rp3,000,000 Rp22,000,000

(30)

2006 2007 2008

Amount distributed Rp10,000,000 Rp3,000,000 Rp22,000,000

Preferred dividen (1,000 shares) 4,000,000 3,000,000 4,000,000

Common dividend (4,000 shares) 6,000,000 0 18,000,000

Dividends per share:

Preferred stock Rp4,000 Rp3,000 Rp4,000

Common stock Rp1,500 none Rp4500

Dividends to Common and Preferred Stock

(31)

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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

(32)

Follow My Example 13-1

Dividends per share:

Preferred Rp500 Rp1,000 Rp1,000

Common stock None Rp500 Rp600

Year 1 Year 2 Year 3

Amount distributed Rp10,000,000 Rp25,000,000 Rp80,000,000 Preferred dividend (20,000

shares) 10,000,000 20,000,000 20,000,000 Common dividend (100,000

(33)

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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.

Issuing Stock

Cash 1 500 000 000

Issued preferred stock and common stock at par for cash.

(34)

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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

(35)

13-3

PT Cahaya Cemerlang issues 2,000 shares of

Rp50,000 par preferred stock for cash at Rp55,000.

Cash 110 000 000

Issued Rp50,000 par

preferred stock at Rp55,000.

Preferred Stock 100 000 000 Paid-in Capital in Excess of

Par—Preferred Stock 10 000 000

(36)

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13-3

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

Issued Rp10,000 par common stock valued at Rp12,000 per share, for land.

Common Stock 100 000 000

(37)

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13-3

A corporation issues 10,000 shares of no-par common stock at Rp40,000 a share.

Cash 400 000 000

Issued 10,000 shares of no-par common stock at

Rp40,000.

(38)

At a later date, the corporation issues

1,000 additional shares at Rp36,000.

Cash 36 000 000

Issued 1,000 shares of no-par common stock at Rp36,000.

(39)

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13-3

Stated Value

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

(40)

Using the same data as we used for par the transaction is recorded as follows:

13-3

Cash 400 000 000

Issued 10,000 shares of no-par common at Rp40,000.

Stated Value

Paid-in Capital in Excess of

(41)

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13-3

Cash 36 000 000

Issued 1,000 shares of no-par common at $36. Stated value, $25.

Stated Value 11 000 000

The corporation issued 1,000 shares of no-par

(42)

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.

(43)

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43 42

Mar. 6 Cash 450,000,000

Common Stock 450,000,000 (15,000 shares x Rp30,000)

Apr. 13 Cash 40,000,000

Preferred Stock 40,000,000 (1,000 shares x Rp40,000)

May 19 Cash 630,000,000

(44)

Journalize the entries

for cash dividends and

stock dividends.

Objective 4

(45)

13-4

Cash Dividends

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

(46)

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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).

13-4

(47)

Dec. 1 Cash Dividends 42 500 000

Declared cash dividend.

Cash Dividends Payable 42 500 000

PT Herlambang records the Rp42,500,000 liability on the declaration date.

(48)

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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.

(49)

The third important date is the date of payment. On January 2, PT Herlambang issues dividend

checks.

Three Important Dividend Dates

Jan. 2 Cash Dividends Payable 42 500 000

Paid cash dividend.

Cash 42 500 000

(50)

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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.

Feb. 26 Cash Dividends 75,000,000

Cash Dividends Payable 75,000,000 Mar. 30 No entry required.

Apr. 2 Cash Dividends Payable 75,000,000

(51)

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A distribution of dividends

to stockholders in the form

of the firm’s own shares is

called a

stock dividend

.

(52)

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.

(53)

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13-4

Dec. 15 Stock Dividend (100,000 x Rp31,000 market) 3,100 000 000

Declared 5% (100,000 share)

stock dividend on Rp20,000 par

common stock with a market value

Stock Dividend Distributable 2,000 000 000

Par—Common Stock 1,100 000 000

(54)

13-4

Jan. 10 Stock Dividends Distributable 2,000 000 000

Issued stock for the stock

dividend.

Common Stock 2,000 000 000

On January 10, the number of shares out-standing is increased by 100,000. The

(55)

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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.

(56)

56 55

June 14 Stock Dividends (150,000 x 4% x Rp110,000) 660,000,000 Stock Dividends Distributable

(6,000 x Rp100,000) 600,000,000 Paid-in Capital in Excess of Par—

Common Stock (Rp660,000,000

– Rp600,000,000) 60,000,000 July 1 No entry required.

Aug. 15 Stock Dividend Distributable 600,000,000

(57)

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Journalize the entries

for treasury stock

transactions.

Objective 5

(58)

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

.

(59)

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 45 000 000

Purchased 1,000 shares of treasury stock at Rp45,000.

Cash 45 000 000

(60)

Later, 200 shares of treasury stock were sold for Rp60,000 per share.

Cash 12 000 000

Sold 200 of treasury stock at Rp60,000.

Treasury Stock* 9 000 000

13-5

Paid-in Capital from Sale of

(61)

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Sold 200 shares of treasury stock at Rp40,000 per share.

Cash 8 000 000

Sold 200 of treasury stock at Rp40,000.

Treasury Stock 9 000 000

13-5

Paid-in Capital from Sale of

(62)

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.

(63)

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63 62

May 3 Treasury Stock (3,200 x Rp42,000) 134,400,000

Cash 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) 48,000,000

Paid-in Capital from Sale of Treasury

Stock [1,200 x (Rp42,000 – Rp40,000)] 2,400,000

(64)

Describe and illustrate

the reporting of

Objective 6

(65)

Paid-in Capital

Preferred 10% stock,

Rp50,000 par (2,000 shares

authorized and issued) Rp100,000,000

Excess of issue price over par 10,000,000 Rp110,000,000 Common stock, Rp20,000 par

(50,000 shares authorized,

45,000 shares issued) Rp900,000,000

Excess of issue price over par 190,000,000 1,090,000,000 From sale of treasury stock 2,000,000

Total Paid-in capital Rp1,202,000,000 Retained earnings 350,000,000

Total Rp1,552,000,000

PT Tarumanegara Balance Sheet December 31, 2008

Stockholder's Equity

Section of a Balance Sheet

(66)

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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

(67)

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67 66

Stockholders’ Equity

Paid-in capital:

Common stock, Rp50,000 par (40,000 shares authorized,

30,000 shares issued) Rp1,500,000,000 Excess of issue price over par 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

(68)

Retained earnings, January 1, 2008 Rp245,000,000

Net Income Rp180,000,000

Less dividens:

Preferred stock Rp10,000,000

Common stock 65,000,000 75,000,000

Increase in retained earnings 105,000,000

Retained earnings, December 31, 2008 Rp350,000,000

PT Tarumanegara

Retained Earnings Statement

For the Year Ended December 31, 2008

Retained Earnings Statement

(69)

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Restrictions 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

(70)

Additional

Preferred Common Paid-in Retained Treasury

Stock Stock Capital Earnings Stock Total Balance, January 1, 2008 Rp100,000,000 Rp850,000,000 Rp177,000,000 Rp245,000,000 Rp(17,000,000) Rp1,355,000,000 Net Income 180,000,000 180,000,000 Dividens on preferred stock (10,000,000) (10,000,000) Dividens on common stock (65,000,000) (65,000,000) Issuance of additional

common stock 50,000,000 25,000,000 75,000,000 Purchase of treasury stock (10,000,000) (10,000,000) Balance, December 31, 2008 Rp100,000,000 Rp900,000,000 Rp202,000,000 Rp350,000,000 Rp(27,000,000) Rp1,525,000,000

PT Tarumanegara

Statement of Stockholder's Equity For the Year Ended December 31, 2008

Statement of

(71)

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PT Kamera Jakarta. reported the following results for the year ending March 31, 2008:

(72)

72 71

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

(73)

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Describe the effect of

stock splits on

corporate financial

statements.

Objective 7

(74)

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

.

(75)

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

(76)

BEFORE STOCK SPLIT

4 shares, Rp100,000 par 20 shares, Rp20,000 par

AFTER 5:1 STOCK SPLIT

(77)

13-7

Since a stock split changes only the par or stated value and the number of