Liabilities and Stockholders’ Equity Chapter ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Learning Objectives After studying this chapter, you should be able to: • Describe how businesses finance their operations • Describe and illustrate current liabilities, notes payable, taxes, contingencies, and payroll • Describe and illustrate the financing of operations through issuance of bonds • Describe and illustrate the financing of operations through issuance of stock • Describe and illustrate the accounting for cash and stock dividends • Describe the effects of stock splits on the financial statements • Describe financial statement reporting of liabilities and stockholders’ equity • Analyze the impact of debt or equity financing on earnings per share ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Learning Objective Describe how businesses finance their operations ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Financing Operations Businesses must finance operations through one of the two ways: • Debt Financing – includes all _ • Equity Financing – includes _ ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Learning Objective Describe and illustrate current liabilities, notes payable, taxes, contingencies, and payroll ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Liabilities • • • • Debts owed to others Current liabilities – due Long-term liabilities – due _ Some liabilities are contingent on the outcome of future events ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Notes Payable • Longer and more formal than accounts payable • Usually bear interest • Issued to _ when merchandise or other assets are purchased ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Assume that a business issues a 90-day, 6% note for $1,000, dated August 1, 2012 to satisfy an account payable ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Income Taxes • Includes _ and possibly _ • Most corporations are required to pay federal income taxes in _ installments throughout the year ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Taxable Income vs Income Before Taxes • Taxable Income – determined according _ • Income Before Taxes – determined according to _ • Differences between the two may need to be allocated between various financial statement periods Exhibit 1: Taxable Income and Income Before Taxes _ _ ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Cash Dividends • Cash distribution of by a corporation to its shareholders • Most common form of dividend • Usually three conditions: • Sufficient _ • Sufficient cash • Formal action by the ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Dividend Announcement Dates _ _ _ _ _ _ _ _ _ ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Cash Dividends Assume a company declares the following cash dividend on December for payment on January 2: ©2013 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part Stock Dividends • Distribution of to stockholders (usually common shares) • No distribution of • Requirements: • Sufficient _ • Formal action by • Amount transferred for small stock dividends (