Chap 11: The Corporation Flashcards
A distinct legal entity separate from the people who own its shares.
A Corporation
One person runs the business and is taxed on earnings at his or her personal income tax rate. The owner profits if the venture is successful, but is also personally liable for all debts, losses, and obligations arising from business activities.
Sole Proprietorship
Both partners run the day-to-day operations and are personally liable for all debts and obligations incurred in the course of business.
General Partnership
General partners run the business while limited partners cannot participate in daily business activities. The limited partners liability is limited to the amount of their investments.
Limited Partnership
A partnership is legislated under the…….
Partnership Act.
This type of corporation has charters that restrict the right of shareholders to transfer shares, limit the number of shareholders to no more than 50, and prohibit members from inviting the public to subscribe to their securities.
Private Corporation
This type of corporation are companies who shares are listed on a stock exchange or traded over-the-counter.
Public Corporations
A corporation is regulated by……….
Federal and provincial act under which its charter is issued, by the charter itself, and by various bylaws.
The _____ are passed by the board of directors and approved by the shareholder.
Bylaws
Power of attorney to vote according to the shareholders intentions.
Votes by Proxy
The proxy statement must accompany the notice of a shareholders meeting, along with an __________ informing the shareholders of issues for consideration at the annual meeting.
Information Circular
Shares are most often registered in street form—in the name of a bank, investment dealer, rather than the true beneficial owner. In such cases, the institution in whose name the securities are registered is the _________. It is their job to make sure that all beneficial holders are notified.
Nominee
A Corporation that is undergoing a restructuring because of financial difficulties may be placed under the control of a few individuals through a ________.
Voting Trust
This measure is used because financiers may be willing to inject new capital only if they can be assured of control to protect their investment until the corporation recovers.
Voting Trust
To transfer voting control, shareholders are asked to deposit their shares with a _________
Trustee
The trustee issues a voting trust certificate, which returns to the shareholder the same rights possessed by the original shares. Voting privileges, however, ……….
are retained with the trustee
- They set company policies by passing resolutions.
Directors
- They normally appoint and supervise officers and signing authorities for banking, budget approval, financing, and plans for expansion.
Directors
- They are normally responsible for the decision to issue shares and declare dividends and other dispositions of profits.
Directors
- They are personally responsible for employee wages, declared dividends, and government remittances.
Directors
Elected by the Board of Directors
Chairman of the Board
- Persons in this position may have all or any of the duties of the president or any other officer of the Corporation.
- They may be the chief executive officer.
Chairman of the Board
Appointed by and responsible to the board of directors.
President
- Persons in this position exercise authority through the other officers and through the heads of departments or divisions
President
Appointed by, and responsible to, the president.
Vice President
- They lead specific areas of the corporation’s operations, such as sales or finance.
Vice President
Appointed by the board of directors.
They are corporate employees responsible for the day-to-day operation of the business.
Officers
A globally accepted high-quality accounting standard used by public companies in more than 100 countries.
International Financial Reporting Standards (IFRS)
IFRS is ______ based, with a focus on ________ ________.
Principal
Detail Disclosure
Shows the company’s financial position on a specific date
Statement of Financial Position (balance sheet)
Shows Assets, Equity, Liabilities
Statement of Financial Positon
Equity is also referred to as the ________ of a company.
Book Value
Noncurrent Assets include….
Property, Plant, and Equipment
Goodwill and other intangible assets
Investment in Associates
Timber companies and other industries involved in resource extraction use the term _________.
Depletion
_________ is the term used to describe the gradual writing off of intangible assets such as patents or trademarks.
Amortization
Depreciation expenses are recorded yearly in the companies ____________________.
Statement of Comprehensive Income.
Regarding deprecation, the __________ method applies an equal amount to each period. This method is used most frequently in Canadian public companies.
Straight-line method
In regards to depreciation, the _________ method applies a fixed percentage, rather than a fixed dollar amount.
Declining Balance Method
An accounting activity called _________ records an expenditure as an asset, rather than an expense.
Capitalization
____________is often defined as the probability that a regular customer of a company will continue to do business with that company because of its location or its reputation for fair dealing and good products
Goodwill
__________appears on the purchasing company’s statement of financial position as the excess of the amount paid for the shares over the net asset value.
Goodwill
refers to the degree of ownership that a company has in another company.
Investment in Associates
Current assets are assets that will be realized, consumed, or sold in the normal course of business, within ___________.
One Year
Current Assets include:
Inventory, Prepaid expenses, Trade receivables, and Cash and Cash equivalents
Noncurrent Assets Include:
PP&E, goodwill, other intangible assets, and investment in Associates
Finished goods sold on credit rather than for cash give rise to ____________, which are eventually paid off in cash
Trade Receivables
Two methods that are commonly used to determine the value of inventories at original cost:
Weighted average method
First-in-first-out
_______ are payments made by the company for services to be received in the near future such as property tax and insurance.
Prepaid expenses
Because some customers failed to pay their bills, an item called allowance for ____________ is often subtracted from receivables.
Doubtful accounts
Equities section of the Statement of Financial Position shows:
Share Capital
Retained Earnings,
Non-controlling Interest
The money paid in by shareholders
Share Capital
Represents the profits earned overtime that have not been paid out as dividends. In other words, the portion of annual earnings retained by the company after payment of all expenses and distribution of all dividends.
Retained Earnings
Appears as a category when a company owns more than 50% of a subsidiary company and consolidates its financial statements. However, the part of the subsidiary that is not owned by the parent company is shown in the statement of financial position as ___________.
Non-controlling interest.
Noncurrent liabilities include:
long-term debt
Deferred tax liabilities
The __________ category represents income tax payable in future periods.
deferred tax liabilities
__________ are debts incurred by a company in the ordinary course of its business that must be paid within the company’s norm operating cycle (typically, on year)
Current Liabilities
Current Liabilities include:
Current portion of long-term debt
Taxes payable to the gov’t
Trade payables
Short term borrowings from financial institutions
This item includes cost of labour, raw materials, fuel and power, supplies and services, and other kinds of expenses that go directly into the cost of manufacturing, or in the case of a merchandising company, expenses that go directly into the cost of goods purchased for resale.
Cost of Sales
This category includes dividends and interest from investments, rents, and sometimes profits from the sale of PP&E.
Other income
After other income is added to gross profit, the following ____________ are deducted.
General Expenses
- Distribution costs, including such expenses as advertising costs and salaries and commissions to sales personnel.
- Administrative expenses, including office salaries, accounting staff salaries, and office supplies.
- Other expenses not directly related to the company’s normal operating activities, including expenses associated with the sale of PP&E.
- Finance costs in the form of interest payments on debtholders’ securities or loans to the company.
General Expenses
_____________ occurs when one company’s investment in another company creates significant influence without gaining control, and when each company has its own financial statements. This is recorded on the Statement of Comprehensive Income.
Share of Profit of Associates
Traditionally, a company has significant influence, but falls short of control when it owns at least __% but less than __% of the voting shares.
20%
50%
The ____________ of accounting is primarily used for ownership holdings that do not result in significant influence (traditionally ownership of less than 20%) and where investments in other companies are reported in the form of investments on the financial statements.
Cost Method
__________includes both current tax and deferred tax for the time period
Income Tax Expense
The statement of changes in equity is important because it provides a link between the……
Statement of Comprehensive Income and Statement of Financial Position
shows how the company generated and spent its cash during the year
Statement of Cash Flows
A statement of cash flows shows the company’s cash flows for a period under the following three headings:
Operating Activities
Financing Activities
Investing Activities
Net working capital items include the following accounts:
- Trade receivables
- Inventories
- Trade payables
- Interest payable
- Taxes payable
Financing Activities include:
If the company issued new share capital or debt, cash flows into the company
If the company repays debt or pays dividends to the shareholders. cash flows out of the company
This section includes any investments made in the company itself, such as the purchase of new capital assets (PPE) or disposal of such assets. As well, this part includes any dividends actually received from associates.
Investing Activities
provides an overview of the firm’s finances and a review of its activities over the course of the previous year.
Annual Report
Two important components of a company’s annual report are:
notes to financial statements and the auditor’s report
A statement of compliance with IFRS; the accounting policies used; more detailed descriptions of fixed assets, share capital, and long-term debt; and commitments and contingencies.
Notes to the Financial Statement
Canadian corporate law requires that every limited company appoint an auditor to represent shareholders and report to them _______ on the company’s financial statements.
Annually
Quarterly statements are not ______
Audited
The auditor must express an opinion in writing as to the fairness of those statements. The opinion can come in one of 3 ways:
Unqualified- Statements are Clean.
Qualified- Statements are okay, but….
Adverse- bad reporting! (these numbers do not faithfully represent the company)
Generally, every person or Corporation that sells or offers to sell to the public securities that have not previously been distributed to the public, or which come from a control position, is required to file with, and obtain the approval of……
the administrators and the province.
The seller must deliver to the purchaser a __________ containing full, true, and plain disclosure of all material facts related to the issue.
prospectus
A __________ is a change in the business, operations, or capital of an issuer that would reasonably be expected to have a significant effect on the market price or value of its securities.
Material Change
The financial disclosure provisions also require that shareholders and administrators be provided with the following information:
- Comparative audited annual financial statements should be sent within _____days of the financial year end, for companies listed on the TSX Venture Exchange, or within ____ days, for senior issuers on the TSX.
- Comparative unaudited quarterly interim financial statements should be sent within ____ days of the end of each of the 1st 3/4 of the financial year, for companies listed on the TSX Venture exchange, or within ____days, for issuers on the TSX.
120 days
90 days
60 days
45 days
Securities legislation in all provinces provides purchasers with the right to __________ from an agreement to purchase securities within two business days after receipt or deemed receipt of a prospectus or any amendment to the prospectus.
Withdrawal
Securities legislation gives purchasers the right to ________ a completed contract for the purchase of securities if the prospectus or amended prospectus offering the security contains a __________, within ____ days.
Rescind,
Misrepresentation
180 days
The right of______________ as granted by most securities legislation provides that an issuer and his directors, and anyone who signs a prospectus, may be liable for damages if the prospectus contains a misrepresentation.
action for damages
A __________ is an offer to purchase from a company’s shareholders more than 20% of the outstanding voting securities of the company (or a number of shares that, when combined with the offers existing shares, exceeds 20%).
Takeover Bid
Most provincial acts state that every person or company accumulating 10% or more of the outstanding voting securities of any class of a reporting issuer, or securities convertible into such securities, must issue a ____________.
Press Release Immediately.
The Directors of the Company, The Senior Officers of the Company, who are defined as the chair or vice-chair of the board of directors, the president, any vice-president, the secretary, the treasurer or the general manager of the issuer, or any other individual who performs functions for the issuer similar to those normally performed by an individual occupying any such office, and each of the five highest paid employees of the issuer, including any individual referred to above. Any person or company (excluding underwriters in the course of public distribution) beneficially owning, directly or indirectly, or controlling or directing more than 10% of the voting rights attached to all voting securities; and
Insider
Wasting Assets is also know as
Depletion
Share of profit of associates occurs when one company’s investment in another company creates significant influence without gaining control, and when each company has its own financial statements. The _______________ is used to capture the income received from the investment.
equity account method
Shows how the company generated and spent its cash during the year.
Statement of Cash Flows
Summarizes the company’s operating activities for the year
Statement of Comprehensive Income
