Chapter 11 Flashcards
What are corporations?
separate legal entites from their owners
What are owners called?
shareholders or stockholders
Public corporations
- Shares are open to the public for anyone to buy (trade on the open market)
- could have hundreds or thousands of owners
Private corporations
- The public cannot buy
- “closely held company”
- Have usually a few owners
Advantages
- Limited liability
- Transferable ownership
- Continuous life
- easy to accumulate capital
Disadvantages
- Corp. are subject to “double taxation”
- Taxes at both corp. and shareholder level
- Subject to various laws and regulations.
Corporate structure
- Corporate charter
- Shareholders ( make big altering decisions)
- Board of Directors ( payment of dividends)
- Executive office ( big day-to-day decisions)
- Management
- Employees
What is Capital stock
Shares issued to obtain financing
1. Authorized stock
2. Outstanding stock
What is Authorized stock
How much the charter says they have in total to sell.
Outstanding stock
How much stock has been stock & is currently held by investors.
QUESTION: Are shares issued at Market value?
How much they are actually sold for
All shares also have par value –> set price on charter
QUESTION: What are three ways stock can be issued?
- At par
- Below par ( discount)
- above par (premium)
Discount on common stock
NB: Debit
Contra equity acc.
Paid in capital in excess of par value
NB: Credit
Equity acc
What are common stock rights?
- Have a right to vote with 1 share in the company
- if shareholder cannot attend a meeting they can appoint a proxy
What are pre-emptive rights?
- They have the right to purchase newly issued shares BEFORE the public up
- right to receive dividends
- Right to share any remaining assets upon liquidation of the company
What is issuing stock for non-cash assets?
When a corp. could receive property or stock in exchange for preferred stock.
Non cash asset JE
(DR) noncash asset
(CR) Common stock
(CR) Paid in excess of par value
Preferred stock
-Usually cannot vote
-issued dividends BEFORE common stockholders
Cumulative preferred stock
gives owners the right to be paid current & prior year
Non-cumulative P.S
gives owners rights to current year dividends before common shareholders
Preferred stock JE
(DR) Cash
(CR) Preferred stock
(CR) Paid in excess par value
What are three important dates for dividends?
- Date of declaration – BOD vote to pay a dividend
- Date of record
- Date of payment
Date of declaration JE
(DR) Retained earnings
(CR) Common/ preferred dividend payable
Date of payment JE
(DR) Common/preferred dividend payable
(CR) Cash
What is treasury stock?
When a company buys back it’s own stock
Contra equity
NB: Debit
Treasury stock JE
(DR) Treasury stock
(CR) Cash
Earnings per share (EPS)
(Net income - preferred dividends/ Weighted average common shares outstanding.
