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ACCT 217 > Ch 11- Analyzing SE > Flashcards

Ch 11- Analyzing SE Flashcards

1
Q

THREE types of corporate forms of organization

A

1) proporietorship
2) corporation
3) partnership

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2
Q

What is a corporate form of organizaiton

A

-separate legal entity
(distinct from owners & shareholders)

-has the rights and priveleges of a person

-may be public or private

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3
Q

public corporation

A

many shareholders, shares are publically traded and held

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4
Q

private corporation

A

few shareholders, shares are closely held and not traded

shares exchange hands through negotiations

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5
Q

characteristics of corporations

A

-separate legal entity
-limited liability of shareholders (sharehodlers only responded up to the value of the shares they hold)
-transferable ownership rights
-ability to acquire capital
-continuous life
-corporation management
-govt regulations
-income tax

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6
Q

pros of a corporation

A

-separate legal entity
-limitied liability
-ease of transferring ownership rights
-easy to acquire capital by issuing shares
-continuous life
-separating management and owners
-potentially reduced income tax compared to other busness orgs

shareholders can own shares and not have to manage the corporations- management will do this

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7
Q

cons of corporations

A

-increased cost and complexity to follow govt regulations
-increased reproting and disclosure requirements

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8
Q

public corproations havea a higher — as compared to priate corps

A

more cost of compliance with regulations

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9
Q

what are the classes of shares

A

1) common/ordinary shares:

2) preferred shares

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10
Q

where are ownership rights of shareholders writted

A

in articles of incorporation or in by-laws

(rights in voting, dividends, and liquidation)

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11
Q

SE= share capital + retained earnings

Share capital= common shares + preferred shares

Retained Earnings= All profits of the company from day 0

A
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12
Q

authorized shares

A

the max amount of shares a company is allowed to sell

-> may be limited or unlimited
-> not recorded, disclosed only in the notes to the financial statemnets

->this info is found in articles of incorporation

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13
Q

issued shares

A

number of shares sold

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14
Q

legal capital

A

share capital cannot be distributed to shareholders, unlike retained earnnigs, which can be distributed as dividends

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15
Q

issued shares ?? authorized shares

A

<=

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16
Q

what can be distributed as dividends to SH?

retaned earnings or share capital?

A

only retained earnings!!

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17
Q

what is IPO

A

first issue of shares is normally through Initial public offering (IPO)
->share price is set by the company

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18
Q

after the shares have been issued by a company, can the price change?

A

yes! the inital price is the IPO but then the market forces of STOCK EXCHANGE will change the price of the shares

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19
Q

Do price fluctuations have a direct impact on fincancil statments?

A

no! it is not recorded on the FS

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20
Q

what is the JE for shares issued for cash
common shares

A

Dr Cash
Cr Common Shares

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21
Q

what is the JE for shares issued for cash
preferred shares

A

Dr Cash
Cr Preffered Shares

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22
Q

Shares can be issues in exchange for services or non caash assets!

A
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23
Q

under ifrs how are shares reocrded if not issued for cash

A

record at cash equivalent price (ideally the fair value of consideration received)

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24
Q

under aspe how are shares recorded if not issued for cash

A

fair value of shares given up or fair value of consideration receiveed (Whichever is more reliable)

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25
under IFRS if company issues common shares for an air craft, what is the JE
Dr Aircraft Cr Common shares the dollar amount is the fair market value of the aircraft
26
WHY would a company repurchase its shares
- to distrubute cash to shareholders -increase trading on securities market (to heat up the trading in the market, if company is concerned that the trading in its shares is not very active) -reduce number of shares issues (incrase earnings per share and return on common se) -buyout of hostile shareholders -have shares avaialble for compensation or other uses
27
what happens in the books when shares are repurchased
they are normally retired and cancelled (removed from the shar capital account) can also be held as treasury shares, for future resale, in ONLY SOME CASES (only in some provinces and froegin countries)
28
how to record the repurchase of common shares JE
1) remove cost of shares from share capital account 2) record cash paid 3) record gain/loss on purchase
29
je for repurchased common shares when there is a contributed surpulus
Dr Common Share (how much they were isssued for) Cr Cash (amount that they were bought back for) Cr Contributed surplus (difference between the two amounts)
30
repuruchase above averageg cost JE slide 19
Dr common shares dr contributed surplus dr retained earnings cr cash
31
what are preferred shares
-shares that have contractual provisions that given them priority over common shares -usually dont have voting rights (they cant vote in a shareholders meeting, whereas common shareholders can vote)
32
JE for issuing preffered shares
Dr Cash Cr Preferred shares
33
what are some preferential features of preferred sahres
-specified dividend rate -dividend preference (tehy are paid divdends before dividends paid to common shareholders, and dividends are cumulative (if not paid this year, than preferred shareholders paid for this eyar and next year)) -liquidation prefernce -other preference (conversion privelede, redeemable/callable, retractable)
34
dividends meaning
- a pro rate distriution of a poriton of a corporations RE to shareholders -cash dividends are most common -stock divdends may also be issued
35
cash dividends 2 requirements
- meet a two part solvecy test (cbca) -effect a formal declaraition of divdidends by board of directors
36
debt vs equity -itnerest payments: optioanl or compulsory
debt -interest compulsory equity -interest optional (divdiends dont have to be declared)
37
3 important dates in connections with divdends
1) declaration date 2) record date 3) payment date
38
what is the declarationd date
when board of directors decide to formally authorize cash divdends -> commits the corporation to a legal oblifation JE: on dec 1 declared Dec 1 Dr Divdends declared Cr Dividends payabledi
39
divdends declares affect which account on books
RE!!!!
40
Divdends payable account type
liabilty
41
what is the record date (div decl)
if you are holding shares on the record date, you will get divdends, if you dont you wont ge dividiends NO JE REQUREID
42
payment date JE
Dr. Div payable Cr. Cash
43
what are stock dividends
distributing dividends in shares -> fair value (on date of declaration) is assigned to stock divdind shares -> same three dates as chash dividends
44
why would a company wanna pay stock divdends as opposed to cash dividends
company doesnt have to pay cash
45
pros of stock dividends
1) satisfy shareholder dividend, without spending cash 2) increase marketability od the shares (incrase number of shares, decrease market price per share, smaller investors can invest) -? reinvest and restrict a portion of the shareholders equity (unavailable for future cash divdends
46
slide 30 ex
!
47
je for stock dividends -declaration date
Dr Dividends declared Cr stock dividends distributable (liability)
48
je for stock dividends -distribution date
Dr Stock dividends distributable Cr cash
49
what kind of account is stock dividends distributable
LIABILITY ACCOUNT
50
WHAT IS THe impact of stock dividends declaration on total shareholders equity
0
51
is stock dividdend refelcted on the cash flow statmenet
no!
52
is cash dividendd reflected on the cash flow statemetn
yes!
53
what is a stock split?
involves the issue of additional shares to shareholders according to their % ownership (like a strock dividend but muhch larger)
54
main purpose of stock split
increase marketability of shares by lowering share price
55
what is effect of stock split on----
slide 34
56
is there a je for stock split
no!
57
if you were an individual would u want a cash dividend, stock divdend, or stock split
cash dividend stock dividend if org has a lot of growth potential stock split=no effect on the investors, instead of one share you will have 2
58
What is shareholder equity made up of
Share Capital (common +preferred shares) and Contibuted surplus (amounts contributed form repuchasing and retiring shares) and Retained Earnings and Accumulated other comprehensive income (under IFRS)
59
What is retained earnings compose of
Cumulative net incomes/losses + annual net income - net losses and dividends **a poortion may be restricted and therefore unavailable for paying out ddividends
60
when is accumulated other comprehenesive income reported? (also called aOCI)
only under IFRS
61
What is OCI
INCLUDES CERTAIN GAINS AND LOSSES THAT BY PASS NET INCOME Ex: revaluation gains and losses of ppe using the revaluation model
62
what is accumulated oci?
cumulative change in shareholders equity -> start w open balance, and is increased/decreased by other comprehensive income/loss period
63
what is net income closed to? what is OCI closed to?
retained earnings aoci
64
what is included in aoci
65
what are the two ways to record PPE under IFRS -> which is most popular
1) cost- acc depr 2) Fair market value usually #1
66
why does revaluation gains and losses NOT go into net income?
1) because this makes net income too volatile! increase decrease a lot cuz market changes 2) the fair market value of products are not in control of management, so ofc not under net income
67
slide 40-44
68
How do we measure a company's corporate eprformance?
1) dividend record 2) earnings performance
69
Dividend record- 2 ratios
payout ratio dividend yield
70
earnings performance- 2 raitos
basic earnings per share return on common shareholder's equity
71
Dont memorize formulas, but make sure you understand the meanings of the ratios
will be given the formulas on final
72
what does the payout ratio tell you
measures the % of profits distributed as cash dividends to common shareholders -HIGHER IS BETTER IF INVESTORS WANT INCOME -LOWERS IS BETTER IS INVESTORYS WANT SHARE PREICE APPRECIATION (if company is paying out less dividends then the cash is being used by the company to re-invest into the business)
73
payout ratio formula
cash dividends declared/net income
74
dividend yield -what does it tell us
measures the profit generaetd by each share HIGHER IS BETTER IF INVESTOR WANTS INCOME LOWER IS BETTER IF INVESTOR WANTS PRICE APPRECIAITON
75
What is the basic earnings per share ratio
measures the income earned by each common share -increased eps over prior years indicates improved performance -not comparable b/w companies
76
how to calculate weighted average number of common shares
use the table on slide 50
77

ACCT 217 (62 decks)

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