ch 12 and 13

Question 1

what is in a good partnership agreement

Answer 1

amounts to be invested, limits on withdrawals, distributions of income and loses, and admision and withdrawal of partners

Question 2

what are the characteristics of an LLC

Answer 2

moderately complex to form
limited legal liablity
not taxable
unlimited life
moderate ability to raise capital1

Question 3

with what is an LLC formed

Answer 3

an operating agreement

Question 4

member-managed LLC

Answer 4

individual members can legally bind the LLC

Question 5

manager-managed LLC

Answer 5

only authorized members may legally bind the LLC, so certain members may participate in the income without managing the company

Question 6

what are the characterstics of a corporation

Answer 6

separate legal entity
continuous life and transferability of ownership
ability to raise capital
limited liability
dividends
double taxation

Question 7

what does separate legal entity mean for a corporation

Answer 7

it can own property in its name, can incur its own liabilities and sell stock

Question 8

what does continuous life and transferability of ownership mean for a corporation

Answer 8

stockholders own the stock of a corporation, they can buy and sell stock without affecting the corporations operations

Question 9

what is a public corporation

Answer 9

a corporation whose shares of stock are traded in pubilc markets

Question 10

what is a private or nonpublic corporation

Answer 10

corporations whose shares of stock are not traded publicly and are usually owned by a small group of investors

Question 11

what is the structure of a corporation

Answer 11

stockholders
board of directors
officers
employees

Question 12

how do you form a corporation

Answer 12

1. file an application of incorporation with the state
2. state grants a charter (articles of incorporation) which formally create the corporatioon
3. corporate management and board of directors prepare a set of bylaws whch are the rules and procedures for the corporation’s affairs

Question 13

what happens to owners equity of the balance sheet for acorporation

Answer 13

it is replaced by stockholder’s equity

Question 14

how is stockholder’s equity different from owner’s equity

Answer 14

SE has retained earnings, paid in capital, and divdend

Question 15

what is paid in capital

Answer 15

capital contributed to the corporation by the stockholder

Question 16

what is retained earnings

Answer 16

net income retained in the business

Question 17

what rights do stockholders have

Answer 17

the right to vote in matters concerning the corporation
the right to share in distributions of earnings
the right to share in assets upon liquidation

Question 18

what is common stock

Answer 18

the type of stock that is issued when only one class of stock is issued, each share has equal rights

Question 19

what is preferred stock

Answer 19

class of stock w preference rights such as a preference to dividends

Question 20

what is par value stock

Answer 20

a dollar amount assigned to each share of stock

Question 21

what is no par stock

Answer 21

stock issued without par value

Question 22

what is no par stock w stated value

Answer 22

in some states, the board of directors is required to assign some value to no-par stock

Question 23

what is cumulative preferred stock

Answer 23

stock that has a right to recieve regular dividends that were not paid in prior years

Question 24

in arrears

Answer 24

cumulative prefered stock dividends that have not been paid in prior years

Question 25

what are the legal requirements for cash dividends

Answer 25

sufficent retained earnings
sufficeint cash
formal action by the board of directors

Question 26

how do stock dividends affect stockholder’s equity accounts and total SE

Answer 26

the amount of the stock dividend is transferred from retained earnings to paid n capital

Question 27

what is a stock split

Answer 27

a proccess by which a corporation reduces the par or state value of its common stock and issues a proportionate number of additional shares, applies to all common shares including treasury shares

Question 28

what is earnngs per share

Answer 28

the net income per share of common stock outstanding

Question 29

what does EPS equal

Answer 29

net income - preferred dvidends/ average # of common shares outstanding