Question

Financial Accounting

• Describe and explain the difference between a cash dividend and a stock dividend. What is the number of shares used when computing a dividend? (Review pages 576 to 581).

Describe Discontinued Operations for financial statements. Provide a real-life business example for Discontinued Operations for financial statements. Explain how Discontinued Operations items affect the investor’s evaluation of the company’s performance. (Review pages 691 to 693).

• “Describe” the Ch10 – debt to assets and times interest earned ratios (Review pages 524 to 525). Explain the importance of each ratio and how each ratio assists the investor in evaluating a company’s performance.

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Answer 1

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1.Describe and explain the difference between a cash dividend and a stock dividend.

Stock price appreciation, is based on investors bidding up the stock price higher. Stock price appreciation occurs because the business continues to grow and investors want exposure as a result.

So what is the difference between a cash dividend and a stock dividend?

A cash dividend is a payment that is made in cash to shareholders of the company. This is paid out to investors using the business’ earnings.

A cash dividend payment is on a per-share basis and will differ for each company.The number of times a dividend is paid throughout the year will determine how to calculate the dividend. For example, a company that pays a dividend twice a year would require the semi-annual payment to be multiplied by two. So, if the company paid a semi-annual dividend of $0.88 per share, the annual dividend would be $1.76 (2 x $0.88 = $1.76).I

A stock dividend,is more shares given to investors on top of those they already own.A stock dividend is based on a percentage and results in an increase in the number of shares owned. For instance, if a company issued a 10% stock dividend, it would mean that a shareholder now owns 10% more shares.

What is the number of shares used when computing a dividend?

Dividend per share is the sum of declared dividends issued by a company for every ordinary share outstanding.

2.Describe Discontinued Operations for financial statements.

Discontinued Operations
Sometimes management decides to dispose of certain business operations but either has not yet done so or did it in the current year after it had generated income or losses. To be accounted for as a discontinued operation, the business must be physically and operationally distinct . Following are the basic definations:

• Measurement date – This is the date when the company develops a formal plan for disposing.
• Phase-out period – This is the time between the measurement date and the actual disposal date.

The income or loss from discontinued operations is reported separately, and past income statements must be restated, separating the income or loss from discontinued operations.
On the measurement date, the company will accrue any estimated loss during the phase-out period and estimated loss on the sale of the disposal. Any expected gain on the disposal cannot be reported until after the sale is completed (the same rule applies to the sale of a portion of a business segment).

3.Describe – debt to assets and times interest earned ratios.Explain the importance of each ratio and how each ratio assists the investor in evaluating a company’s performance.

Time interest earned ratio (TIE), also known as interest coverage ratio, indicates how it can cover its interest payments on a pretax basis. The larger the time interest earned, the more capable the company is paying the interest on its debt.

The debt to total assets ratio is an indicator of financial leverage. It tells the percentage of total assets that were financed by creditors, liabilities, debt. The debt to total assets ratio is calculated by dividing a corporation's total liabilities by its total assets.