chapter 11 concepts Flashcards
Publicly held corporation
A corporation that may have thousands of stockholders and whose stock is traded on a national securities market.
Privately held corporation
A corporation that has only a few stockholders and whose stock is not available for sale to the general public.
Characteristics of a corporation
Advantages: Separate Legal Existence Limited Liability of Stockholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Disadvantages: Corporation Management Government Regulations Additional Taxes
What is the controller and what does he do?
The chief accounting officer is the controller. The controller (1) maintains the accounting records, (2) ensures an adequate system of internal control, and (3) prepares financial statements, tax returns, and internal reports.
What is the treasurer?
The treasurer has custody of the corporation’s funds and oversees the company’s cash position.
S corporation
allows for legal treatment as a corporation but tax treatment as a partnership—that is, no double taxation.
One of the primary criteria is that the company cannot have more than 100 shareholders.
Charter
A document that describes a corporation’s name and purpose, types of stock and number of shares authorized, names of individuals involved in the formation, and number of shares each individual has agreed to purchase.
by-laws.
The by-laws establish the internal rules and procedures for conducting the affairs of the corporation.
Common stock
When a corporation has only one class of stock, it is identified as common stock.
Authorized stock
The amount of stock that a corporation is authorized to sell as indicated in its charter. The authorization of common stock does not result in a formal accounting entry.
Par value stock
Capital stock that has been assigned a value per share in the corporate charter.
Legal capital
The amount of capital that must be retained in the business for the protection of corporate creditors.
No-par value stock
Capital stock that has not been assigned a value in the corporate charter.
Stated value
The amount per share assigned by the board of directors to no-par stock.
Paid-in capital
The amount stockholders paid in to the corporation in exchange for shares of ownership.
Retained earnings
Net income that a company retains in the business.
Preferred stock
Capital stock that has contractual preferences over common stock in certain areas.
Treasury stock
A corporation’s own stock that has been reacquired by the corporation and is being held for future use.
Outstanding stock
Capital stock that has been issued and is being held by stockholders.
Treasury Stock is a contra account to
stockholders’ equity
Dividend
A distribution by a corporation to its stockholders on a pro rata (proportional to ownership) basis.
Cash dividend
A pro rata (proportional to ownership) distribution of cash to stockholders.
Declaration date
The date the board of directors formally authorizes the dividend and announces it to stockholders.
Record date
The date when the company determines ownership of outstanding shares for dividend purposes.
Payment date
The date cash dividend payments are made to stockholders.
Cumulative dividend
A feature of preferred stock entitling the stockholder to receive current and unpaid prior-year dividends before common stockholders receive any dividends.
Dividends in arrears
Preferred dividends that were supposed to be declared but were not declared during a given period.
Stock dividend
A pro rata (proportional to ownership) distribution of the corporation’s own stock to stockholders.
Stock split
The issuance of additional shares of stock to stockholders accompanied by a reduction in the par or stated value per share.
Deficit
A debit balance in Retained Earnings.
Retained earnings restrictions
Circumstances that make a portion of retained earnings currently unavailable for dividends.
Accumulated Other Comprehensive Income
This account includes the cumulative amount of all previous items reported as other comprehensive income.
Payout ratio
A measure of the percentage of earnings a company distributes in the form of cash dividends to common stockholders. It is computed by dividing total cash dividends declared to common shareholders by net income.
Return on common stockholders’ equity (ROE)
A measure of profitability from the stockholders’ point of view; computed by dividing net income minus preferred dividends by average common stockholders’ equity.
