Week 2 Textbook Assignments Styler Backman Kimberly Deady St

Week 2 Textbook Assignments styler Backman Kimberly Deady Stephan

The assignment involves recording journal entries for various equity transactions of Phelps Corporation, preparing the stockholders' equity section of the company's balance sheet as of December 31, 2014, and solving related accounting exercises including computation of weighted-average shares, earnings per share (EPS), and stock appreciation rights expenses. The tasks include analyzing transactions such as issuance of common and preferred stock, asset exchanges for preferred stock, treasury stock transactions, dividend declarations, income statement close, and presentation of stockholders' equity. Further, it entails calculations related to EPS and stock split effects, detailed journal entries, and presentation of comprehensive financial statement sections according to theoretical and practical standards in interim and annual accounting reports.

Paper For Above instruction

The comprehensive understanding of equity transactions and the preparation of related financial reports constitute a fundamental aspect of financial accounting. In this paper, we analyze the necessary journal entries, prepare statements, and perform calculations concerning Phelps Corporation’s equity activities in 2014, including issuance of common and preferred stock, treasury stock transactions, dividends, and net income closure, followed by the computation of weighted-average shares and earnings per share (EPS). These activities provide insight into the intricacies of capital structure management and reporting in accordance with accounting standards.

Introduction

Equity transactions fundamentally influence the financial health and strategic positioning of a corporation. Accurate recording of these transactions ensures transparent reporting and compliance with accounting principles. In 2014, Phelps Corporation engaged in numerous equity-related activities critical for understanding its valuation and ownership structure. This analysis dissects those activities, offering insights into journal entries, statement preparation, and critical calculations like EPS.

Analysis of Transactions and Journal Entries

On January 5, 2014, Phelps Corporation obtained a charter authorizing issuance of both preferred and common stock, setting the stage for subsequent transactions. The issuance of common stock at a specified price impacts the common stock and additional paid-in capital accounts, depending on the issuance price relative to par value. The transactions involving preferred stock issuance in exchange for assets such as equipment, factory, and land require journal entries that reflect the fair market values and the recognition of the preferred stock at its par value, alongside the consideration for assets received.

Asset exchanges for preferred stock typically involve debiting assets at their fair market value and crediting preferred stock at its par value. If there's a difference, it may be allocated to paid-in capital or additional paid-in capital accounts accordingly. When shares of common stock are purchased at a certain price using the cost method, the treasury stock account is debited at the cost, and the corresponding cash account is credited—this maintains the balance sheet accuracy. The sale of treasury shares at a different price results in a gain or loss that influences additional paid-in capital or retained earnings, contingent upon the transaction specifics.

The declaration of dividends, both on common and preferred stock, results in journal entries that debit retained earnings and credit dividends payable for the declared amount. When dividends are paid, the dividends payable account is debited and cash credited. At the year-end, income summary is closed to retained earnings, reflecting net income, which is a crucial step for accurate equity presentation.

Preparation of Stockholders' Equity Section

The stockholders’ equity section of Phelps Corporation as of December 31, 2014, consolidates various components including capital stock, additional paid-in capital, and retained earnings. The detailed breakdown involves listing preferred stock at par, common stock at par, and respective paid-in capital accounts reflecting excess amounts over par. The net effect of all transactions and net income is accumulated in retained earnings, culminating in total stockholders' equity.

The comprehensive presentation provides stakeholders with a transparent view of the company's ownership structure, surplus reserves, and retained earnings, reflecting the cumulative impacts of equity activities in the fiscal year.

Calculations of Weighted-Average Shares and Earnings Per Share (EPS)

Determining the weighted-average number of common shares involves considering the timing and effects of stock dividends, splits, and issuance. For 2013, a 10% stock dividend or split influences the outstanding shares, affecting the EPS calculation. The formula accounts for the number of shares outstanding during each period multiplied by the fraction of time they were outstanding, then summed to find the weighted-average shares for the period.

Similarly, in 2014 and subsequent years, stock split effects and additional share issuances necessitate adjustments to the averages used in EPS computations. The formula's accuracy directly impacts investor perceptions and company valuation assessments.

EPS and Diluted Earnings Calculations

Calculating earnings per share involves dividing net income available to common shareholders by the weighted-average number of shares outstanding. For dotted income periods with extraordinary items, the income statement separately displays earnings before and after such items to reflect ongoing business performance accurately.

Diluted EPS accounts for potential common shares, such as stock options or other convertible securities that could reduce EPS if exercised. The calculation assumes these securities are converted or exercised at the beginning of the period, offering a more conservative view of earnings attributable to each share.

Stock Appreciation Rights and Expense Recognition

Stock appreciation rights (SARs) represent contingent compensation based on stock price increases, requiring expense recognition over vesting periods. This involves estimating the fair value of SARs at grant date and recognizing expense proportionally over the service period, aligning with standards for compensation expense reporting.

In Beckford's case, the cumulative and recognized compensation expenses over multiple dates reflect the ongoing accounting for SARs, which influence overall compensation expense recognition and shareholder dilution considerations.

Conclusion

The detailed consideration of Phelps Corporation’s equity transactions, statement preparation, and associated calculations underscores the importance of accurate accounting practices. Understanding these processes enables proper financial analysis, ensures compliance with reporting standards, and enhances transparency for stakeholders. Equally, the computations related to EPS, stock splits, and SARs are vital in portraying a true and fair view of the firm's financial position and performance.

References

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