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MBA: Accounting Principles > Chapter 13 > Flashcards

Chapter 13 Flashcards

1
Q

Corporation

A

An entity that is separate from its owners and has the same rights as a person

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2
Q

Privately held and publicly held corporations

A
  • Private: corporation that does not offer its stock for public sale and has few stockholders
  • Public: selling and trading stock on an organized stock market such as NASDAQ
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3
Q

Separate legal entity

A

Pertaining to a corporation having the same rights, duties, and responsibilities as a person

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4
Q

Limited liability

A

Stockholders are not liable for corporate actions or debt

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5
Q

Transferable ownership rights

A

Transfers of shares from one stockholder to another has no direct effect on operations except when it causes a change in directors to oversee the corporation

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6
Q

Continuous life

A

Corporation’s life is indefinite because it is not tied to the physical lives of its owners

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7
Q

No mutual agency for stockholders

A

Shareholders cannot bind the corporation to contracts (as they are not officers and managers = lack of mutual agency)

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8
Q

Capital accumulation

A

Increase in assets from investments or profits

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9
Q

Corporate disadvantages

A
  • Government regulation and laws
  • Additional taxes via federal and state corporate income taxes , plus often double taxed as the corporate income is taxed a second time as part of stockholders’ personal income when they receive dividends
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10
Q

Incorporators or promoters

A

Prospective stock holders that file a charter

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11
Q

Board of directors

A

Elected by stockholders, responsible for overseeing corporate activities and is in charge of hiring/firing key executives who manage day-to-day operations

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12
Q

Proxy

A

A document that gives a designated agent the right to vote the stock

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13
Q

Specific and general rights

A
  • Specific = rights under the corporation’s charter
  • General = rights under state law
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14
Q

Rights of stockholders’ ownership of common stocks

A
  • Sell or dispose of their stock
  • Purchase their proportional share of any common stock issued later
  • Receive the same dividend on each common share
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15
Q

Stock certificate

A

Proof of share ownership, not very common anymore

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16
Q

Registrar

A

Individual (banks or trust companies) that keeps a list of stockholders for a meetings and dividend payments

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17
Q

Transfer agent

A

Individual (banks or trust companies) that assists with purchases and sales of shares

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18
Q

Capital stock

A

Shares issued to obtain capital

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19
Q

Authorized stock

A

Number of shares that a corporation’s charter allows it to sale

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20
Q

Outstanding sock

A

Stock held by stockholders/investors

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21
Q

Issuing stock

A

Stock that has been sold, directly (stock to buyers) or indirectly (pay a investment banker to sell stock)
*Some investment bankers UNDERWRITE stock, buy it from the corporation and resell it to investors

22
Q

Market value per share

A

Price at which stock is bought and sold

23
Q

Par value stock

A

Stock that has a par value, which is an amount assigned per share by the corporation per charter

24
Q

Minimum legal capital

A

The least amount that the buyers of stock must contribute to the corporation or be at risk to pay creditors at a future date

25
Q

No par value or stated stock

A

Stock not assigned an amount by the corporate charter but you may be registered in state that requires a minimum legal state value per share

26
Q

Paid in capital or contributed capital

A

Total amount of cash and other assets the corporation receives from its stockholders in exchange for its stock

27
Q

Retained stock

A

Cumulative net or loss not distributed as dividends to its stockholders

28
Q

Preferred stock

A
  • More paid per share to get privileges
  • Preferred stockholders get dividends before, often guaranteed dividend percentage
  • Preference for receiving dividends and assets in liquidation
  • But you give up your vote
29
Q

Reasons for stock dividend

A
  • Keep stock affordable by increasing the number of outstanding shares, which lowers the per share stock price
  • Shows management’s confidence that the company is doing well and will continue
30
Q

Date of declaration

A

Vote to declare and pay a dividend, legal liability

31
Q

Date of record

A

Date for identifying those stockholders to receive dividends

32
Q

Date of payment

A

Date payment is submitted and recorded by the corporation

33
Q

Small stock dividend

A

Distribution of 25% or less of previously outstanding shares, equal to market value

34
Q

Large stock dividend

A

Distribution of more then 25% of previously outstanding shares for the par or stated value of the stock

35
Q

Why issue a stock dividend?

A
  • Continue dividends conserve cash
  • Reduce the market price per share
  • Reward investors
36
Q

Issued shares =

A

Outstanding + treasury shares

37
Q

Why would you want to buy stock back?

A
  • Use the shares to acquire another corporation
  • Avoid takeover of the company
  • Provide as compensation to employees
  • Maximize supply and demand
38
Q

Restricted retained earnings (statutory and contractual)

A

S = A limit to treasury stock purchases to the amount of retained earnings

C = A loan agreement that restricts paying dividends beyond a specified amount of retained earnings

39
Q

Appropriated retained earnings

A

A voluntary transfer of amounts from retained earnings account to the appropriated retained earning account to inform users of special activities that require funding

40
Q

Statement of stockholder’s equity

A

Lists the beginning and ending balances of key equity accounts and describes the changes that occur during the period

41
Q

Continued operations

A

Operations that should continue from period to period. Income from continuing operations helps investors make predictions about future operations.

42
Q

Discontinued operations

A

These gains and losses occur when a company sells or disposes of an identifiable division.

43
Q

Earning per share equation

A

Net income - preferred dividends / weighted average number of common shares outstanding

44
Q

Earnings per share definition (net income per share)

A

The income earned per share of outstanding stock

45
Q

Price-earnings ratio definition

A

Metric to determine if the company’s stock is over or undervalued

46
Q

P/E ratio equation

A

Market price per share / earnings per share

MPS = current trading price of individual stock share
EPS = company’s net income divided by outstanding shares

47
Q

Income stocks

A

Stocks that provide a return of large dividends on a regular basis

48
Q

Growth stocks

A

Pay little or no cash dividends but are attractive to investors because of expected stock price increases

49
Q

Dividend yield definition

A

A measure to determine if a stock is a growth or an income stock

50
Q

Dividend yield equation

A

Annual cash dividends per share / market value per share

MBA: Accounting Principles (3 decks)

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