Ch 13 Introduction to Corporations

Question 1

authorized shares

Answer 1

The total number of each class of shares a corporation is allowed to sell,a s indicated in its articles of incorporation. This amount may be specified or unlimited. (p. 691)

Question 2

cash dividends

Answer 2

A pro rata (equal) distribution of cash to shareholders. (p. 698)

Question 3

common shares

Answer 3

Shares where the owners have the right to
(1) vote on the election of the board of directors,
(2) share in the distribution of profit through dividends, and
(3) share any assets that remain after all debts and shares with priority rights have been paid.
If the corporation has only one class of shares, they are common shares. (p. 688)

Question 4

contributed capital

Answer 4

The total amount contributed by the shareholders. Consists of share capital and contributed surplus. (p. 704)

Question 5

convertible preferred shares

Answer 5

Preferred shares that the shareholder can convert into common shares at a specified ratio. (p. 695)

Question 6

corporation

Answer 6

A business organized as a separate legal entity, with most of the rights and privileges of a person Shares are evidence of ownership. (p. 686)

Question 7

cumulative

Answer 7

A feature of preferred shares that entitles the shareholder to receive current dividends and unpaid prior-year dividends before common shareholders receive any dividends. (p. 695)

Question 8

declaration date

Answer 8

The date when the board of directors formally declares a dividend and announces it to shareholders. (p. 699)

Question 9

deficit

Answer 9

A debit balance in the Retained Earnings account created when total losses and dividends to date are greater than total profit to date; it is reported as a deduction from shareholders’ equity. (p. 705)

Question 10

dividend

Answer 10

A distribution of profit by a corporation to its shareholders on a pro rata basis. (p. 690)

Question 11

dividends in arrears

Answer 11

Dividends on cumulative preferred shares that were not declared. (p. 695)

Question 12

initial public offering (IPO)

Answer 12

The initial offering of a corporation’s shares to the public. (p. 691)

Question 13

issued shares

Answer 13

The authorized shares that have been sold. (p. 691)

Question 14

legal capital

Answer 14

The share capital that must be retained in the business for the protection of corporate creditors. (p. 692)

Question 15

no par value shares

Answer 15

Share capital that has not been given a specific value. All the proceeds from the sale of no par value shares are treated as legal capital. (p. 692)

Question 16

noncumulative

Answer 16

Preferred shares that are entitled to the current dividend, but not to any unpaid amounts from previous years. (p. 695)

Question 17

organization costs

Answer 17

Costs incurred in the formation of a corporation. (p. 688)

Question 18

payment date

Answer 18

The date when cash dividends are paid to shareholders. (p. 699)

Question 19

preferred shares

Answer 19

Shares that have contractual preferences over common shares. (p. 694)

Question 20

private corporation

Answer 20

A corporation that has only a few shareholders. Its shares are not available for sale to the general public. (p. 686)

Question 21

public corporation

Answer 21

A corporation that may have thousands of shareholders. Its shares are usually traded on an organized securities market. (p. 686)

Question 22

record date

Answer 22

The date when ownership of shares is determined for dividend purposes. (p. 699)

Question 23

redeemable (callable) preferred shares

Answer 23

Preferred shares that give the issuer the right to purchase the shares from shareholders at specified future dates and prices. (p. 695)

Question 24

retained earnings

Answer 24

Earned capital (cumulative profit less losses and amounts distributed to shareholders since incorporation) that has been retained for future use. If negative (that is, a debit balance), it is called a “deficit”. (p. 696)

Question 25

retractable preferred shares

Answer 25

Preferred shares that give the shareholder the right to sell the share to the issuer at specified future dates and prices. (p. 696)

Question 26

return on equity

Answer 26

A measure of profitability from the shareholders’ point of view. It is calculated by dividing profit by average common shareholders’ equity. (p. 705)

Question 27

secondary market

Answer 27

A market where investors buy and sell shares of public companies from each other, rather than from the companies. (p. 692)

Question 28

share capital

Answer 28

The amount paid, or contributed, to the corporation by shareholders in exchange for shares of ownership. It can consist of preferred and common shares. (p. 691)

Question 29

statement of retained earnings

Answer 29

A financial statement that shows the changes in retained earnings during the year, used only under ASPE. (p. 701)