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Accounting for Income & Earnings Flashcards

Accounting for Income & Earnings Flashcards
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Dividends

These are the funds a company distributes to shareholders. The funds come from the retained earnings of the company. These are always declared by the Board of Directors of a company.

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Minnie's Muffins made $10,000 off common stock outstanding last year. They charge $0.10 for each common stock. How many common stocks outstanding does Minnie's Muffins have?

10,000 / .1 = 100,000.

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Minnie's Muffins had a net income of $50,000. It paid out $2,000 in preferred dividends and $3,000 in common dividends. It has 40,000 shares of common stock outstanding. Find earnings per share.

(50,000 - 2,000) / 40,000 = 48,000 / 40,000 = $1.20 per share

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Calculating Earnings Per Share: Formula

(Net income - preferred dividends) / Number of Common Shares Outstanding

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Common Shares

A type of stock issued by companies. This stock is generally less expensive than preferred stock and more of it is sold.

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Outstanding Shares

These are all the shares that a company has sold. They are currently held by stockholders.

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Comprehensive Income: Sources

Futures contracts in a hedged position

Transactions in foreign currency

Marketable securities that are kept for sale

A minimum pension liability

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Comprehensive Income

This refers to all transactions made by a business that affect the equity of the firm. These changes cannot be related to the business's owner.

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17 cards in set

Flashcard Content Overview

You can access this set of flashcards to easily review the definition of comprehensive income. You'll be able to go over scrip dividends and property dividends. These cards also cover common and outstanding shares. Furthermore, the flashcards contained in this set can help you focus on important dates related to the payment of company dividends.

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Comprehensive Income

This refers to all transactions made by a business that affect the equity of the firm. These changes cannot be related to the business's owner.

Comprehensive Income: Sources

Futures contracts in a hedged position

Transactions in foreign currency

Marketable securities that are kept for sale

A minimum pension liability

Outstanding Shares

These are all the shares that a company has sold. They are currently held by stockholders.

Common Shares

A type of stock issued by companies. This stock is generally less expensive than preferred stock and more of it is sold.

Calculating Earnings Per Share: Formula

(Net income - preferred dividends) / Number of Common Shares Outstanding

Minnie's Muffins had a net income of $50,000. It paid out $2,000 in preferred dividends and $3,000 in common dividends. It has 40,000 shares of common stock outstanding. Find earnings per share.

(50,000 - 2,000) / 40,000 = 48,000 / 40,000 = $1.20 per share

Minnie's Muffins made $10,000 off common stock outstanding last year. They charge $0.10 for each common stock. How many common stocks outstanding does Minnie's Muffins have?

10,000 / .1 = 100,000.

Dividends

These are the funds a company distributes to shareholders. The funds come from the retained earnings of the company. These are always declared by the Board of Directors of a company.

Dividends: Important Dates

Date of declaration: When a dividend is approved for payment

Date of record: When you have to be a shareholder to get a payment

Date of payment: When dividends are sent to shareholders

Date of Declaration: Accounting Records

On this date, the company must debit the Retained Earnings account for the dividend amount and credit the Dividends Payable account.

Date of Record: Accounting Records

Companies do not have to record anything for their accounting on this date.

Date of Payment: Accounting Records

Companies must debit the Dividends Payable account and credit the Cash account on this date.

Property Dividend

These dividends are a cash alternative. They typically use investment securities.

Scrip Dividend

Companies offer these dividends when they don't have enough money to pay their dividends at the moment, but they're promising to do so in the future.

Company A uses a short-term investment to pay dividends. The investment has a fair market value of $10,000 but cost $9,000. How is this recorded?

Debit Investment for $1,000 and credit Gain on Appreciation for the same amount. Then proceed as normal.

Additional Paid-In Capital

An account that records money paid as a dividend that exceeds the funds in the retained earnings account of a company.

You are paying your stockholders a 10% dividend on 10,000 shares that are valued at $5 a share. How much will this dividend cost?

(10,000 x 10%) x $5 = $5,000

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