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MANAGING PROJECTS

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Projects represent nonroutine business activities that often have long-term strategic ramifications for a firm. In this chapter, we examined how projects differ from routine business activities and discussed the major phases of projects. We noted how environmental changes have resulted in increased attention being paid to projects and project management over the past decade. In the second half of the chapter, we introduced some basic tools that businesses can use when planning for and controlling projects. Both Gantt charts and network diagrams give managers a visual picture of how a project is going. Network diagrams have the added advantage of showing the precedence between activities, as well as the critical path(s). We wrapped up the chapter by showing how these concepts are embedded in inexpensive yet powerful software packages such as Microsoft Project. If you want to learn more about project management, we encourage you to take a look at the Web site for the Proj...
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Accounting for Corporations

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CONCEPTUAL
Corporations are legal entities whose stockholders are not liable for its debts. Stock is easily transferred, and the life of a corporation does not end with the incapacity of a stockholder. A corporation acts through its agents, who are its officers and managers. Corporations are regulated and subject to income taxes. Authorized stock is the stock that a corporation’s charter authorizes it to sell. Issued stock is the portion of authorized shares sold. Par value stock is a value per share assigned by the charter. No-par value stock is stock not assigned a value per share by the charter. Stated value stock is no-par stock to which the directors assign a value per share.
Preferred stock has a priority (or senior status) relative to common stock in one or more areas, usually (1) dividends and (2) assets in case of liquidation. Preferred stock usually does not carry voting rights and can be convertible or callable. Convertibility permits the holder to convert preferred to common. Callability permits the issuer to buy back preferred stock under specified conditions. Preferred stockholders usually hold the right to dividend distributions before common stockholders. When preferred stock is cumulative and in arrears, the amount in arrears must be distributed to preferred before any dividends are distributed to common.
Stockholders’ equity is made up of (1) paid-in capital and (2) retained earnings. Paid-in capital consists of funds raised by stock issuances. Retained earnings consists of cumulative net income (losses) not distributed. Many companies face statutory and contractual restrictions on retained earnings. Corporations can voluntarily appropriate retained earnings to inform others about their disposition. Prior period adjustments are corrections of errors in prior financial statements.
ANALYTICAL
A company with a simple capital structure computes basic EPS by dividing net income less any preferred dividends by the weighted-average number of outstanding common shares. A company with a complex capital structure must usually report both basic and diluted EPS.
A common stock’s price-earnings (PE) ratio is computed by dividing the stock’s market value (price) per share by its EPS. A stock’s PE is based on expectations that can prove to be better or worse than eventual performance.
Dividend yield is the ratio of a stock’s annual cash dividends per share to its market value (price) per share. Dividend yield can be compared with the yield of other companies to determine whether the stock is expected to be an income or growth stock.
Book value per common share is equity applicable to common shares divided by the number of outstanding common shares. Book value per preferred share is equity applicable to preferred shares divided by the number of outstanding preferred shares.
PROCEDURAL
When stock is issued, its par or stated value is credited to the stock account and any excess is credited to a separate contributed capital account. If a stock has neither par nor stated value, the entire proceeds are credited to the stock account. Stockholders must contribute assets equal to minimum legal capital or be potentially liable for the deficiency.
Cash dividends involve three events. On the date of declaration, the directors bind the company to pay the dividend. A dividend declaration reduces retained earnings and creates a current liability. On the date of record, recipients of the dividend are identified. On the date of payment, cash is paid to stockholders and the current liability is removed. Neither a stock dividend nor a stock split alters the value of the company. However, the value of each share is less due to the distribution of additional shares. The distribution of additional shares is according to individual stockholders’ ownership percentage. Small stock dividends (#25%) are recorded by capitalizing retained earnings equal to the market value of distributed shares. Large stock dividends (.25%) are recorded by capitalizing retained earnings equal to the par or stated value of distributed shares. Stock splits do not necessitate journal entries but do necessitate changes in the description of stock.
When a corporation purchases its own previously issued stock, it debits the cost of these shares to Treasury Stock. Treasury stock is subtracted from equity in the balance sheet. If treasury stock is reissued, any proceeds in excess of cost are credited to Paid-In Capital, Treasury Stock. If the proceeds are less than cost, they are debited to Paid-In Capital, Treasury Stock to the extent a kredit balance exists. Any remaining amount is debited to Retained Earnings. When stock is retired, all accounts related to the stock are removed.
Guidance Answers to Decision Maker
Entrepreneur
The 50% stock dividend provides you no direct income. A stock dividend often reveals management’s optimistic expectations about the future and can improve a stock’s marketability by making it affordable to more investors. Accordingly, a stock dividend usually reveals “good news” and because of this, it likely increases (slightly) the market value for your stock. The same conclusions apply to the 3-for-2 stock split.
Concert Organizer
You have two basic options: (1) different classes of common stock or (2) common and preferred stock. Your objective is to issue to yourself stock that has all or a major ity of the voting power. The other class of stock would carry limited or no voting rights. In this way, you maintain control and are able to raise the necessary funds.
Money Manager
Since one company requires a payment of $19 for each $1 of earnings, and the other requires $25, you would prefer the stock with the PE of 19; it is a better deal given identical prospects. You should make sure these companies’ earnings computations are roughly the same, for example, no extraordinary items, unusual events, and so forth. Also, your PE estimates for these companies do matter. If you are willing to pay $29 for each $1 of earnings for these companies, you obviously expect both to exceed current market expectations.
Investor
Book value reflects recorded values. BMX’s book value is $4 per common share. Stock price reflects the market’s expectation of net asset value (both tangible and intangible items). BMX’s market value is $7 per common share. Comparing these figures suggests BMX’s market value of net assets is higher than its recorded values (by an amount of $7 versus $4 per share).

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