What is a Warranty Liability?
- Reports the estimated amount that a company will have to spend to repair or replace a product during its warranty period
- Application of expense recognition principle
Whats an example for warranty?
-Written guarantee for a product
—> Holds the maker of a product responsible to repair or replace defective parts
What are the shareholder rights?
- Vote
- Dividends
- Liquidation (share of the asset)
- Preemption (opportunity to keep share)
Whats the difference between Ordinary Shares and Preference Shares?
-Ordinary Shares —> common stock
-Preference Shares:
—>receive dividends first
—>seniority (liquidation priority)
-cumulative preference shares
Whats the Authorized share capital?
Max. number of shares a company can issue under its constitution
What are outstanding shares?
Total numbers of shares owned by shareholders
Outstanding = Issued Shares - Treasury Shares
Whats the use of Treasury Shares?
- Offer employee stock option compensation
- Avoid hostile takeover bids
- Increase reported Earnings per Share by reducing outstanding shares
What are the significants of treasury shares?
-Gains or losses are not recorded in the same income statement
—>but recognized in share capital
-Most common usage of treasury shares is stock compensation
-Retirement of stock
—> canceling
Name the three forms of Dividends
- Cash Dividends
- Share Dividends
- Non-cash asset Dividends
What is the criteria for cash dividends?
Companies must have:
- Enough Retained Earnings to declare Dividend
- Enough Cash to pay dividend
Whats the function of Share Dividends?
-Increase Share Capital and decrease Retained Earnings
—> conserve Cash
-Reduce market price of shares
—> make them attractive to more investors
