chapter 13

Question 1

corporation

Answer 1

is a business organized under state law that is a separate legal entity

Question 2

unique characteristic of corporation

Answer 2

• separate legal entity
• number of owners
• no personal liability of the owners
• lack of mutual agency
• indefinite life
• taxation
• capital accumulation

Question 3

authorized stock

Answer 3

the maximum number of shares of stock a corporation may issue

Question 4

issued stock

Answer 4

share of stock that have been issued by the corporation

Question 5

outstanding stock

Answer 5

stock held by the stockholders

Question 6

treasury stock

Answer 6

stock that was previously issued and later reacquired by the company (issued but not outstanding)

Question 7

stockholder’s 4 basic rights

Answer 7

1. vote: each share of basic ownership in the corporation
2. dividends: stockholders receive a proportionate part of any dividend declared and paid.
3. liquidation: stockholders receive their proportionate share of any assets remaining after liquidation
4. preemptive right: stockholders have a right to maintain their proportional ownership.

Question 8

different classes of stock

Answer 8

common and preferred

Question 9

common stock

Answer 9

represents the basic ownership of a corporation

Question 10

preferred stock

Answer 10

gives its owners certain advantages over common stock.

Question 11

par value

Answer 11

is an amount assigned by a company to a share of its stock.Most companies set par value low to avoid issuing their stock below par. The par value of a stock has no relation to the market value which is the price at which the stock is bought and sold.

Question 12

stated value

Answer 12

no-par stock that has been assigned an amount similar to par value

Question 13

stockholder’s equity

Answer 13

a corporation’s equity that includes paid-in capital and retained earnings

Question 14

paid-in capital

Answer 14

represents amounts received from the stockholders of a corporation in exchange for stock

Question 15

retained earnings

Answer 15

equity earned by profitable operations of a corporation that is not distributed to stockholders

Question 16

underwriter

Answer 16

a company can sell its stock directly to stockholders by using the services of them

Question 17

issue price

Answer 17

is the amount a corporation receives from issuing stock

Question 18

legal capital

Answer 18

refers to the portion of stockholder’s equity that cannot be used for dividends

Question 19

three dividend dates

Answer 19

declaration date-the board of directors announces the intention to pay the dividend and a liability is created

Question 20

date of record

Answer 20

this the date the corporation records the stockholders that will receive dividend checks

Question 21

payment date

Answer 21

this the date the dividend is paid to the stockholders

Question 22

stock dividend

Answer 22

is a distribution of a corporations own stock to its shareholders

• they affect only stockholder’s equity
• they have no effect on total’s stockholder’s equity
• they have no effect on assets or liabilties

Question 23

stock split

Answer 23

• increases the number of issued and outstanding shares of stock
• decrease the par value and the market value per share proportionately

Question 24

earnings per share

Answer 24

reports the amount of net income (loss) for each share of the company’s outstanding common stock
(net income-preferred dividends)/average number of common shares outstanding