Chapter 18 Flashcards
liabilities represent….
the creditors interests in the assets of a corporation, to the shareholder’s residual interest in those assets
debt financing
notes, bonds, leases, etc. amounts representing those liabilities denote CREDITORS INTEREST in the company’s assets
the effect of shareholders equity
represent the OWNERSHIP INTEREST of the shareholder
what amount is shareholder’s equity
residual amount
what is the residual amount
what’s left over after creditors claims have been subtracted from assets
assest - liabilities
(net assets)
ownership interests of shareholders arise from 2 sources:
- amounts INVESTED by shareholders in the corporation (paid in capital)
- amounts earned by the corporation on behalf of its shareholder’s (retained earnings)
primary sources of paid in capital
investment made by shareholders when buying preferred/common stock
retained earnings is
earned capital
4 classifications within shareholders equity
paid in capital
retained earnings
AOCI
Treasury stock
paid in capital
consists primarily of amounts invested by shareholders when they purchase shares of stock from the corp. Amounts sometimes are invested or disinvested by others in behalf of the shareholders
retained earnings
reported at a single amount
treasury stock
shares previously sold were bought back by the corporation from shareholders
ACOI
provides a more expansive view of the change in shareholders equity than does traditional net income. Includes net income and other gains and losses not traditionally including in net income
transactions between corps and shareholders
dividends and sale/purchase of shares of the company’s stock
4 types of gains and losses not included on IS
- net holding g/l on investments
- g/l from and amendments to post retirement plans
- deferred g/l on derivatives
- g/l from foreign currency translations
AOCI is located
on the BS along with RE
report 2 attributes of OCI
- components of OCI created during the reporting period
2. comprehensive income accumulated over the current and prior years
how is OCI creating during the reporting period reported
at either as an expanded version of the IS OR a separate statement immediately following the IS
how is AOCI reported
a separate component of shareholder’s equity, following RE
what is contained in shareholders equity
PS, CS, RE, AOCI
all transactions are accounted for the same way for types of companies besides…
the method of accounting for capital - ownership interest in the company
corporations have what time of liability
limited
shareholder liability is limited to
the amount of investment in shares
all companies can raise funds by
operating at a profit or borrowing
corporations raise capital easier b/c…
they can sell ownership interest in the form of share of stock, ownership rights are transferred easily
disadvantages of corporation
paperwork - expensive government regulations
double taxation
what is double taxation
income tax on earnings and shareholders pay personal income taxes on previously taxed earnings
types of corps
private individuals
public
nfp
S Corporations
has both characteristics of both regular corps and partnerships. owners have limited liability protection of a corp. but income/expenses are passed through the owners like a partnership (avoid double taxation)
Limited LIability Corps
owners not liable for debts except to the extent of their business. all members can be involved w/ managing w/o losing liability protection (unlike a partnership) income/exp passed through to owners as a partnership (not double tax), but there are not limits on the number of owners unlike a S corp.
Limited LIability partnership
similar to LL company except it doesn’t offer all the liability protection available. Partners liable for own actions but not entirely liable for other partners actions.,
model business corp. at
designed to serve as a guide to states in the development of their corporation statutes.
articles of incorporation
statement of the nature of a firms business activities, the shares to be issued, and the composition of the initial board of directors. specifies max # of shares legally permitted to issue.
ownership rights held by common shareholders:
- the right to vote on matters that come before the shareholders, including the election of corps directors.
- the right to share in profits when dividends are declared
- the right to share in the distributions of assets if the company is liquidated.
preemptive right
the right to maintain ones percentage share of ownership when new shares are issued. each shareholder is offered the opp. to buy percentage of share equal to the % of shares he owns at that time
rights of preferred stock
- typically have preference to a specified amount of dividends (stated $ amount per share or % of par value per share)
- customarily have preference as the distribution of assets in the event the corp.is dissolved.
Right to conversion
allows them to exchange shares of PS to CS at a specified conversion ration
redemption privilege
allowed the option to return return shares for a pre-determined redemption price (under specific conditions)
shares may be:
convertible into a specified # of another class of shares
preferred share may be cumulative
if the specified dividend is not paid within the year the unpaid dividend accumulate and must be made up in a later dividend year before any dividends are paid to common shareholders
PS may be participating
allowed to receive additional dividends beyond the stated amount.
JE for shares sold for cash
(debit) Cash
(credit) CS
(credit) Paid in capital excess of par
