Chapter 11 Flashcards
what is a corporation
is an entity created by law that is separate and distinct from its owners
Its continued existence is dependent upon the statutes of the state in which it is incorporated.
Two common bases for classification of corporations are:by purpose. by ownership.
characteristics of a corporation
Separate legal existence Limited liability of stockholders Transferable ownership rights Ability to acquire capital Continuous life Corporation management Government regulations Additional taxes
what does it mean to be separate entity?
An entity separate and distinct from owners.
Acts under its own name rather than name of stockholders.
May buy, own, and sell property; borrow money; and enter into legally binding contracts; may sue or be sued; and pays its own taxes.
Owners (stockholders) cannot bind corporation unless owners are agents of the corporation.
how do stockholders work with corporations?
Creditors have recourse only to corporate assets to satisfy claims.
Liability of stockholders limited to investment in corporation.
Creditors of the corporation have no legal claim on personal assets of owners unless fraud has occurred.
unlike sole and partnership proprietorship, corporations have to
pay federal and state taxes, Sec laws, and stock market exchange regulations.
Corporations are subject to state and federal regulations.
State prescribes requirements for issuing stock, distributions of earnings permitted to stockholders, and the effects of retiring stock.
Federal securities laws govern sale of capital stock to general public; disclosure of financial affairs to Securities and Exchange Commission through quarterly and annual reports; and the reporting requirements of the various securities markets.
advantages of coporations over partnership or sole prorietorshp
Separate legal existence Limited liability of stockholders Transferable ownership rights Ability to acquire capital Continuous life Corporation management-professional managers
disadvantages of corporations:
Corporation management-separation of ownership and management
Government regulations
Additional taxesVote in the election of board of directors and in actions that require stockholder approval.
Share in corporate earnings through the receipt of dividends.
Maintain the same percentage ownership when additional shares of stock are issued (preemptive right).
Share in assets upon liquidation (residual claim).
how to journalize par value stock and excess stock
the par value of the shares is CREDITED to COMMON STOCK
the portion of the proceeds that is above or below par value is recorded in a separate PAID-IN CAPITAL account.
The cumulative effect of the declaration and payment of a cash dividend on a company’s financial statements is to
decrease both total assets and total stock holder’s equity
