Chapter 10 (Equity) Flashcards
Corporation Advantages
- Separate legal entity / limited personal __________
- Transferability of ownership, continuity of existence until liquidation
- Ease of raising _______
Corporation Disadvantages
- Organization costs
- Double _________
- Regulation & supervision
liability
capital
taxiation
Corporate Stakeholders
1) ____________: Owners of the corporation, those with voting shares, elect 2)
2) ______ of _________: Establish overall policies, declare dividends, select corporate officers
3) Corporate Officers (Chief Executive & Financial Officer, Vice President): Implement operating policies and manage day-to-day operations
4) Employees
1) Stockholders
2) Board of Directors
Common Stock
- Typical stockholder rights: voting to _____ the board of directors, share of distributed profits (aka _________), preemptive right to purchase new ______ to maintain proportionate ownership, residual claim in liquidation (dissolving the company)
- Different classes may exist that vary voting and/or dividend rights (ex. Class A / Class B Stock)
elect, dividends, shares
Sale of Stock
- IPOs: Initial Public Offerings, the _____ time a corporation sells stock to the public
- SEOs: Seasoned Equity Offerings, subsequent sales of new stock to the public
- Secondary market sales (from one investor to another investor) does ___ affect the company’s accounting records
Authorized, Issued & Outstanding Shares
- Authorized Shares = shares the company can _____ (sell)
- Issued Shares = sold shares
- Outstanding Shares = shares held by _________ (i.e. shares not bought back by company)
- Treasury Stock = shares _______ back by the company
first
not
issue
investors
bought
Par Value
- Unrelated to issuance price or market value per share
- Theoretically the _______ amount of contributed capital that must remain in the corporation
- If no par or stated value, all proceeds are credited to the ‘______ _____’ account
minimum
‘Common Stock’
Treasury Stock
- Shares of the company’s stock that it has acquired (bought back) and holds for purposes other than retiring them
- Listed as a contra-______ account
- No dividend or voting rights
- Upon reissuance (selling shares), the difference between the selling price and the cost is a credit/debit to APIC (__________ ____-__ _______)
- APIC acts as a gain/loss in the journal entry
contra-equity
Additional Paid-In Capital
Cash Dividends
- Distribution of __ to shareholders
- Not legally required and not listed as an _______
- Listed as a contra-______ account
- Three significant dates: Declaration date, Date of Record, and Date of Payment
- Date of Record does ___ include a journal entry
- Two constraints on dividend issuance: sufficient RE, sufficient cash
NI
expense
contra-equity
not
Stock Splits
- __________ shares outstanding in order to ______ share price (potentially makes the company more attractive to investors)
- changes ___ value per share, but not the total ___ value
- A journal entry to record the effect of a stock split is ___ needed
increase, reduce
par (x2)
not
Preferred Stock
- Considered ____ risky because of preference over common stock (b/c preferred shareholders receive their dividends first)
- Typically does ___ have voting rights, and has a fixed dividend rate at a percentage of ___ value
less
not, par
Return on Equity
- ____________ measure
- Formula = (NI / ________ stockholders’ equity)
- Dividend Yield = (Annual dividend per share / Market _____ per share)
- The rate of return in cash dividends from an investment in the company’s common stock
- Dividend Payout Ratio = (Annual dividend per share / _________ per share)
- The percentage of the __ available to common shareholders that is paid out as dividends
Profitability
Average
Price
Earnings
NI
