Hi, Else here.
And today we're going to be working
on shareholders' equity.
We're actually going to be working on Greene Corporation.
Please make sure that you download the questions.
You'll see the Dropbox location below this video.
And download it so that you can follow along or preferred
is that you actually attempt the question
before I do it and then follow along afterwards.
We're going to be doing a number of things
during that time period.
We're going to be issuing shares.
I'm also going to show you how to record a cash dividend, then
a stock dividend, which is quite different,
share repurchase, which a lot of students have problems with,
and then I'm going to do earnings per share.
Note that I will be doing earnings per share
in 2017, not in 2016, because there's a complication.
When you do a stock dividend, you
have to do some additional calculations,
and I don't want to get into anything
that complex for introductory financial accounting.
All right, let's get started.
This is Greene Corporation for the year ended December 31,
2015.
Often, students ask for proper format for the statement
of financial position, also called the balance sheet
under ASPE.
And so what I've done is provided one example of what
the format would look like.
This isn't the be all and end all.
This is simply one format that is
totally acceptable under both IFRS and ASPE.
Notice that I've got share capital.
It indicates my preferred shares and I
have 100,000 shares authorized, which
means that I can issue up to 100,000 shares.
Right now, I have only issued 4,400 shares
and they were issued for $700,000.
I also have common shares here.
Notice that preferred shares are listed first
and that is because preferred shares, of course,
have preferential treatment.
They get paid out in the case of the company disbanding first.
They also get dividends before the common shareholders
get dividends, so it makes sense to list them always first.
Common shares, in this case, I have an unlimited number
of common shares authorized, so I can
issue as many as I would like.
But I have only issued so far 286,450 shares
and those were issued for $6,405,022.
That equals a total, notice there's a total right
here, 7,105,022.
I've also got additional contributed capital.
This is made up of a contributed surplus.
Some textbooks call it contributed capital,
I'm going to call it a contributed surplus.
And where did this contributed surplus come from?
I had re-acquired common shares in the past
and that gave me contributed surplus of $50,000.
I've got total contributed capital listed right here.
And then of course, I have my retained earnings,
which there would be a note to the financial statements, which
describes retained earnings.
I'm not going to show you the notes
of the financial statements.
That's 3,428,570 and then that gives me
my total shareholders' equity.
You'll notice that a number of things
have occurred in this company during 2016,
so let's just go through them quickly.
February 1, we issued--
so we're going to sell--
an additional 10,000 common shares for $22 each.
On June 1, I declared a semiannual preferred share
dividend.
Shareholders of record are on June 18
and then it was paid on July 1.
On August 1, I declared a 10% stock dividend
to shareholders of record on August 14
distributed on September 1.
Shares have the following values on the noted dates.
So $25 on August 1, $25.25 on August 14,
and $24 on September 1.
I've not noted in this question, but these are common shares.
So I am declaring a 10% stock dividend to common shares.
On December 1, I declare a semiannual preferred share
dividend.
Again, shareholders of record on December 20 and then
paid on December 31.
In addition on December 31, I have net income--
that's according to ASPE-- or profit--
according to IFRS-- for the year, $245,800.
The required is to record the entries for 2016.
And b is provide the statement of changes in equity
as well as the shareholders' equity
section of the statement of financial position,
also called the balance sheet under ASPE.
So we're going to be doing all of these things.
Make sure you're following along.
I'm not going to refer back to this listing, because I
know you can download it.
When you're doing this style of question,
I always recommend to students that they first
put down the T account.
If you don't have the T accounts,
then it's going to become very, very difficult
for you to determine at the end of the year
how to create both the statement of changes in equity
as well as the shareholders' equity section.
So it's very, very important that you first
create the T accounts.
So I have two styles of T accounts that I do.
I'm going to do the preferred shares.
And the preferred shares had a starting balance of 700,000.
But I'm also going to have a little side note here
about the number of shares.
So the number of shares here was 4,400.
I'm going to do the same for the common shares.
Common shares were 6,405,022.
The number of common shares outstanding at that time,
286,450.
I also need a T account for retained earnings, which
was 3,428,570, and an additional T account
for the contributed surplus, also called
contributed capital.
The normal balance IN the contributed surplus account
is always a credit.
I've got my starting point.
Now what I'm going to do is start doing my entries.
Every time I do an entry, I'm going to go back here,
and I'm going to update my accounts so that I always
have a running total of everything I'm doing.
So let's start the entries.
Let's start with February 1.
I sold 10,000 common shares.
What did I get?
I got cash.
What did I give away?
I gave away ownership in the company, which is represented
by common shares.
What was the value of what I sold?
10,000 times the price I sold it for, and in this case,
I sold it for $22.
That means I received $220,000 and I gave up ownership
worth the same amount.
Of course, I'm going to immediately update
my T accounts.
Now the next entry.
June 1, I declared a semiannual preferred share dividend.
A lot of students wonder where I get the preferred
shared dividend, so take a quick look at this.
Notice that right here, $6.
That is the amount of the dividend.
That's the annual dividend.
I am declaring a semiannual dividend, so let's pop that.
I now know that on June 1, I'm doing a cash dividend.
There are different accounts that you
can use for a cash dividend.
You can use the account cash dividends.
You can also just use an account called dividends.
And you can do it directly to retained earnings.
On the other side, on the date of declaration,
that's when we have an immediate liability.
We owe the shareholders the amount of the dividend
on the date we've promised it.
So in that case, we're going to record dividends payable.
What does the amount of the dividend?
Well, I happen to know that I have 4,400 preferred shares.
I'm going to pay them, they're dividend,
But that's the annual dividend.
I actually have to multiply this times 1/2,
because I'm paying a semiannual dividend.
That means that I'm going to pay them a dividend of $13,200.
I'm going to immediately update the T accounts.
I've chosen to use retained earnings,
but remember that you can use dividends or cash dividends.
Next entry, June 18 is the date of record.
On the data record, there's no entry.
Instead what happens is all the names of all the shareholders
are written down, and these are the individuals, whether they
own the shares or not on the date of payment,
will be paid the dividend.
Next date, July 1.
On July 1, we pay the dividend.
What do we give up?
We give up cash.
What do we do as a debit?
Well, previous to this, I recorded a dividend payable,
but now I'm paying my dividend.
Therefore, I no longer own anybody anything.
Same amount, 13,213, 13,200.
Neither of these are going to affect the accounts that I
am tracking right now, so I don't need to do anything
on my T accounts.
Let's just have a quick recap of the entries required in order
to record a cash dividend.
First, on the date of declaration,
we record the fact that we have a legal liability
to pay a dividend at some point in the future.
Second, on the date of record, we record
that there is no entry, because all we're doing
is listing down everybody's name.
And finally, on the date of payment, we record the cash
payment to the shareholders.
In my next video, I'll continue on and show you
how to record a stock dividend.