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Quarterly: The corporation makes tax deposits based on the estimated tax expense.
December 15
End of year: The corporation recomputes the estimated income tax expense and compares it to the tax deposits made.
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Tax Estimates
1. At the beginning of the year, Sports Outfitters Corporation estimated its tax liability for 2010 to be $35,976.
2. Sports Outfitters Corporation makes quarterly deposits during the year. ($35,976
2010
Apr. 15 Income Tax Expense Cash Quarterly income tax deposit.
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4 = $8,994)
8,994.00 8,994.00
3. At year-end, Sports Outfitters Corporation recomputes the estimated income tax expense and compares it to the tax deposits made during the year. New estimated tax expense $36,520
35,976 544
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end-of-year estimated tax expense, record the difference as follows: Debit: Income Tax Expense Credit: Income Tax Payable
If the quarterly tax deposits are greater than the end-of-year estimated tax expense, record the difference as follows:
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Income or expenses can be included in taxable income this year and appear on the financial statements in later years, or vice versa. Income or expenses can be included on the financial statements but never appear in taxable income.
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136,590
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Tax on $136,590
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36,520
$ 544
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Closing Entries
1. Close revenue to Income Summary.
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The last closing entry for a corporation transfers the net income after income taxes (or the net loss) from the Income Summary account to Retained Earnings.
GENERAL JOURNAL
DATE 2010 Dec. 31 Income Summary Retained Earnings 100,070.00 100,070.00 DESCRIPTION POST REF. DEBIT CREDIT
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Retained Earnings
May be distributed to stockholders. Appear in the Stockholders Equity section of the balance sheet.
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Declaration Date: Debit: Retained Earnings Credit: Dividends Payable (Common or Preferred) Record Date: A list is made of the stockholders and the number of shares owned by each.
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Stock Dividend
Used to record par or stated value of shares to be issued as a result of a stock dividend declaration.
The excess of market value over par value is credited to Paid-in Capital in Excess of Par.
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Declaration
Debit: Retained Earnings Credit: Common Stock Dividend Distributable Credit: Paid-in Capital in Excess of ParCommon
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Book Value
Represents the total equity applicable to the class of stock divided by the number of shares outstanding. Remains the same before and after a stock dividend, but each shareholder owns more shares of stock with proportionately lower book value per share.
For each class of stock, book value per share = equity
shares outstanding
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Stock Split
Occurs when a corporation issues two or more shares of new stock to replace each share outstanding without making changes to the capital accounts. Declared when stock is difficult to sell because of high market price. Does not change the capital account balances.
Stock Split
Only a memorandum entry is needed in the general journal.
2010
Dec. 1 On this date the board of directors declared a 3-for-1 stock split and reduced the stated value of common stock from $75 to $25 per share. Total outstanding shares will be 120,000.
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An appropriation of retained earnings reduces the amount of retained earnings available for dividend declarations.
It does not mean that cash has been set aside in a fund.
2010 Oct. 5 Retained Earnings Retained Earnings Appropriated for Retail Center Construction Appropriation for construction made by board of directors on October 5. 60,000.00
60,000.00
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A community that wishes to attract new industry may give a corporation a plant site or building as an inducement for the corporation to move to the community.
2010 Jan. 2 Land Donated Capital Appraised value of plant site donated by city. 100,000.00 100,000.00
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Treasury Stock
Why do corporations purchase their own stock?
The corporation has extra cash. The corporation offers treasury stock as incentive plans for officers. The corporation wants to create a demand for the stock, thus increasing its market value. The corporation can purchase shares of stockholders who need cash or want to retire (privately held corporations).
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2010 Jan. 10 Treasury Stock - Preferred Cash Purchased 400 shares of treasury stock. 21,200.00 21,200.00
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Income statement Statement of retained earnings Balance sheet Statement of cash flows
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QUESTION:
A statement of retained earnings is a financial statement that shows all changes that have occurred in retained earnings during the period.
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