Chapter 13 Flashcards
corporation
business organized as a legal entity separate and distinct from its owners under state corporation law.
limited liability
responsibility of a business’s owners for losses only up to the amount they invest
Mutual agency
The ability of partners in a partnership to commit other partners and the business to a contract.
Stockholders
owners of a corporation due to their purchase of stock in the corporation
officers
manage the coporation
IPO
(initial public offering) a company’s first equity issue made available to the public
double taxation
taxation of dividends both as corporate profit and as personal income
Corporate charter
A document issued by a state government to create a corporation
capital stock
total shares of ownership in a corporation
stock certificate
proof of stock ownership
Authorized Stock
The amount of stock that a corporation is authorized to sell as indicated in its charter
issued stock
the number of shares sold to investors; includes treasury shares
outstanding stock
issued stock in the hands of stockholders
levels of stock
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Stockholder’s Rights
Vote on Coroprate matters
Receive Dividends
Receive capital appreciation or depreciation on stock disposition
Payment if the corporation liquidates (goes out of business)
preemptive right
allows common stockholders to maintain their proportionate ownership in the corporation when new shares are issued, thus protecting them from dilution of their ownership
Common Stock
The basic form of ownership in a corporation.
Preferred Stock
Stock that has specified rights over common stock
dividends, liquidation
par value
an assigned dollar value that is printed on a stock certificate
No-Par Value Stock
Capital stock that has not been assigned a value in the corporate charter
Stated value stock
No-par stock to which the directors assign a “stated” value per share.
stockholder’s equity
Paid in Capital
reatained earningspaid in
paid-in capital
total amount of cash and other assets paid in to the corporation by stockholders in exchange for capital stock.
retained earnings
earnings retained by a firm for its use rather than paid out as dividends
stock issuance
stockholders
underwriters
issuing stock at par value
par= $1
dr. cash $1
cr. common stock $1
premium
the amount above par at which stock is offered
par value = 1$
premium = $1.25
not a gain, income, or profit.
paid in capital in excess of par
represents amounts received from stockholders above par value
premium stock j/e
dr. cash
cr. common stock @ par
cr paid in capital excess of par at difference above par
common stock always recorded as
par
no par common stock
no paidin capital prem acct.
dr. cash
cr common stock
stated value issuance
dr. cash
cr. common stated val.
cr. excess stated
stated instead of par
stock for assets other than cash
same j/e as cash for stock
recorded at market value of either stock issued or assets rcvd, whichever is more clearly determined
prefered issuance
dr cash
cr prf. stock @ par
cr paid in capital prf over par.
balance sheet
paid in capital
prf stock
par/stated excess
common stock
par/stated excess
R/E
Treasury Stock
a corporations own stock previously issued and bought back by company
stock buy backs
increase value, avoid takeover, support stock price, reward employees
treasury stock account
contra equity dr. normal balance.
recorded at cost of purchase without reference to par/stated value
subtracted from equity
What is Outstanding stock?
(Issued stock) - (Treasury stock)
- Stock that is currently held by investors.
purchase of treasury stock
dr stock
cr cash
sale of treasury stock
dr. cash
cr treasury stock
sale of treasury above cost
dr. cash
cr. treasury stock
cr PIC from treasury stock
treasury sale below cost
dr cash
dr. PIC treasury stock (up to balance)
cr Treasury stock at cost
first exhaust any amount in PIC from treasury
if it goes below the amount available, it is a debit to r/e
retirement of stock
buy back and cancel stock
retire stock j/e
dr stock
cr cash
Dividends
Cash payments to stockholders
requires a profit (net income, r/e)
Legal capital
The portion of stockholders’ equity that cannot be used for dividends
Declaration Date
The date on which the board of directors officially approves a dividend
date of record
date directors specify for identifying stockholders to receive dividends
Payment Date
date dividends are actually paid
dividend j/e
dr cash dividends
cr dividends payable
dividends paid on
outstanding stock
paying dividend j/e
dr. div payable
cr cash
closing cash dividend acount to r/e
decreases retained earnings
dr r/e
cr. cash div
dividends on preferred par stock
= outstanding shares, * par val*div rate
dividends paid to
preferred shareholders first
common shareholders as a residual only if dividend is large enough
cumulative preferred stock
owners receive prior dividends not paid (in arrears) before any dividends to common stock
non cumulative dividend
current period dividend only
dividends in arrears
not a liability. only effective as of declaration date as div payable
should be in notes on fin stmts
stock dividend
a distribution by a corp of its own stock to shareholders
stock dividends
impact equity accounts but have no effect on total equity
does not affect Assets/liab
stock dividends can
conserve cash
reduce stock price (more supply)
reward investors
small stock dividend
<20-25% of issued & outstanding stock
recorded at market value
declaration of small stock dividend
dr. stock div (market)
cr common stock div
cr PIC excess par
Large stock dividend
> 25% issued/ outstanding stock
continuing operations
business that continues from year to year
discontinued operations
business segments sold or closed
statement of r/e
net income less dividends
deficit
debt
appropriation of r/e
recorded by j/e
prior period adjustment
the correction of an error in previously issued financial statements.
statement of stockholders equity
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Earnings per share
most widely used business statistic
EPS formula
(net income- preferred dividends)/Average number of shares outstanding
Earnings per share reflects
amount of company’s net income/loss for each share of its common stock
Price/earnings ratio (P/E Ratio)
ratio of market price common stock to earnings per share
P/E Ratio Reflects
value value the stock market places on $1 of a company’s earnings
P/E Ratio Formula
Market price per share common stock/earnings per share
P/E Ratio use for investors
ROI ability
Rate of Return on Common Stock
relationship between net income available to common stockholders and their average common equity
